The report, “Retirement for the AGES,” presents a framework for evaluating retirement plans and systems, both private and public, as well as retirement income public policy proposals. Such a framework can serve as the basis for objectively scoring plans, systems and proposals, according to the academy. This approach can also provide insights on how well these plans, systems and proposals meet retirement income needs and how they might be improved.
“What has been missing in the debate over America’s retirement systems, and how to improve them, is a common framework for evaluating them. The American Academy of Actuaries has developed this approach for both public officials and the general public to better understand their strengths and weaknesses,” says president Tom Terry, in Washington, D.C. “Often retirement income systems are so complex, it’s hard to judge whether they have been well-designed.” The framework presented in the report, he adds, offers an antidote to retirement policy complexity.
The “Retirement for the AGES” framework uses the principles of alignment, governance, efficiency and sustainability to evaluate if a retirement-related system meets the following criteria:
- Frees employers from the complications of administering plans by increasing features like portability;
- Provides for professional management;
- Communicates retirement savings as future income replacement;
- Adds strong automatic features and defaults, such as auto-enrollment and better default investment options;
- Standardizes and makes fees transparent in order to lower costs;
- Incorporates self-adjusting mechanisms to respond to changing economic conditions;
- Allows smaller plans to group together to take advantage of economies of scale;
- Develops procedures to help prevent decisions that damage sustainability; and
- Clarifies the role of members of a plan’s governing bodies and clearly defines conflicts of interest.
The “Retirement for the AGES” framework was developed by the Academy Pension Practice Council’s Forward Thinking Task Force. Later this year, the academy will release the first in a series of scorecards based on the “Retirement for the AGES” principles that qualitatively evaluate select systems and policy proposals.