Report Suggests U.S. Must Cut Social Security Benefits

PHOTO CREDIT 401(K) 2012

The recent Report of the Commission on Retirement Security and Personal Savings established by the Bipartisan Policy Center reflects a lot of work and thought by knowledgeable committee members and a superb staff headed by Bill Hoagland, a former high-level Senate staffer.  But the Commission’s failure to recognize the limitations of safe harbors and tax credits for 401(k)s and, most importantly, its recommendation to cut Social Security severely limits the usefulness of the document.  Let me go quickly through the Commission’s recommendations.

Improve access to workplace savings plans

The Commission rightly recognizes that half of private sector workers do not participate in a retirement plan and acknowledges the need for a federal – not a state-by-state – solution.  The proposal is to mandate that employers with 50 or more employees automatically enroll their workers in:
1) a 401(k) or defined benefit plan;
2) an enhanced MyRA; or
3) a new “Retirement Security Plan” – essentially a multiple employer plan without the need for participating businesses to be closely related.
Unfortunately, this proposal would likely pick up only roughly a third of the uncovered – missing those at firms with fewer than 50 employees, uncovered workers at firms where the employer provides a plan, and the 16 percent of the workforce who are self-employed or work as contractors.
For those who have a plan, the Commission misses the opportunity to make 401(k)s work better by mandating auto-enrollment and auto-escalation of default contribution rates, opting instead for another set of safe harbors.  We have seen the limits of the 2006 Pension Protection Act safe harbors.  It’s time for a more direct approach.

Promote personal savings for short-term needs and preserve retirement saving

This group of proposals addresses the leakage issue.  The Commission recommends changes that would allow employers to automatically enroll employees into two accounts – one for short-term needs and one for retirement.  It also recommends facilitating rollovers so that employees do not cash out.  These ideas are a step in the right direction.

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