Culminating four years of work, a diverse group of public policy experts on Friday, May 11, recommended several new pension plans designed to provide more secure retirement coverage to millions more American workers.
The goal of the initiative, dubbed the Conversation on Coverage, is to dramatically increase the number of people participating in retirement savings programs. Currently, about 52 million employees don’t have formal saving vehicles for their senior years.
The group proposed two new kinds of pension products that pay workers a set amount of their retirement each month. Under the Guaranteed Account Plan, each participant’s account is credited with an annual contribution equal to a percentage of his or her pay.
The plan would generate a guaranteed annual return, be insured by the federal Pension Benefit Guaranty Corp. and operate on funding rules that reduce the volatility in employers’ payments.
Another defined-contribution proposal is called the Plain Old Pension Plan. A simplified version of the traditional defined-benefit pension, advocates say that it would be easy for companies to administer because contributions would be based on published government tables.
In order to expand retirement coverage to workers whose employers don’t offer a plan or who aren’t eligible for their company’s plan, the group would establish an individual Retirement Investment Account. Under this proposal, all employees would automatically have a payroll deduction deposited in a central clearinghouse.
The clearinghouse would be a government entity but would contract with private-sector firms to invest the funds. Workers could carry the account with them from job to job.
The coverage coalition also proposed what it calls a Model T plan to help small businesses offer pensions through a multiple-employer payroll deduction.
The coalition is trying to make a strong statement about the importance of retirement savings by bringing together participants from across the political spectrum. The next step is to transform its proposals from policy ideas into concrete products.
They will try to do this in the next phase of the project, which involves advocating for legislation, setting up task forces and demonstration projects, and reaching out to employers.
Creating momentum might be a challenge because Congress passed landmark reform last year, the Pension Protection Act. Pension fatigue could be a problem on Capitol Hill.
“We’re getting our ideas out in the marketplace,” she said following a news conference at the National Press Club. “They’re not going to be [relegated to] sitting on desks or shelves.”
The recommendations come at a time when defined-benefit plans are waning. A study of Fortune 100 companies released in mid-May by Watson Wyatt shows that 58 of them sponsored such plans, down from 63 in 2005 and 90 in 1985. The number of Fortune 100 companies offering defined-contribution vehicles has risen from 10 in 1985 to 42 last year.
Although the number of plans may be dropping, the funding status of the largest company pensions is strengthening, according to a recent study by Milliman. The consulting firm reported that the 100 plans it surveyed could cover nearly 100 percent of their obligations—a significant improvement from early in the decade, when the bursting of the high-tech bubble and the September 11, 2001, terrorist attacks caused an economic downturn that created huge pension deficits.
Companies continue to worry about the expense and volatility of maintaining defined-benefit plans. But initiative participants are confident that the private sector will be receptive to their recommendations.
“We’ve built into our discussions and the proceedings we’ve gone through the viewpoint of employers,” said John Kimpel, former senior vice president of Fidelity Investments.
They also tried to go beyond what Congress accomplished with the Pension Protection Act. That law provides a safe harbor for companies to set up automatic enrollment for 401(k) plans. A firm can decide whether it wants to implement a plan.
The initiative’s proposal on the individual retirement account, however, mandates an automatic payroll deduction.
“We’re creating a guaranteed savings infrastructure,” said Michael Calabrese, vice president of the New America Foundation.