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Group's Report Continues 'Conversation' on Retirement Savings
Two new styles of retirement plans were suggested by the consortium, but most experts predicted no official action on the recommendations. And some said that's a good idea -- because government mandates hamper company flexibility in plan design.
A group studying retirement savings in the United States, the Conversation on Coverage, released on May 11 a series of recommendations, including the creation of a new "hybrid" plan and a simplified defined-benefit pension plan. Though the report included few major surprises, experts familiar with the recommendations applauded the group's contribution for moving the "conversation" forward. The Conversation on Coverage was officially launched in 2001 by the Pension Rights Center to address a variety of pension and retirement savings issues, including the fact that roughly half of the private-sector workforce does not have access to or does not participate in a workplace-retirement plan. The group includes representatives from a broad spectrum of organizations and institutions, including businesses, unions, financial institutions, retiree organizations and academia. It released an interim report in July 2004. Among the proposals included in the final report were two new types of guaranteed pension plans: * The Guaranteed Account Plan, a "hybrid" plan that combines features of traditional pension plans with features of 401(k) plans. With a GAP, employers would contribute to employees' pension accounts and guarantee a promised rate of return. * The Plain Old Pension Plan, a new more traditional defined-benefit pension plan that would feature simpler and more predictable funding rules than other defined-benefit plans, while still providing a lifetime stream of income for retirees. "Both GAP and POPP incorporate funding rules that should substantially reduce the fluctuation from year to year in the employer's annual contribution to the plan and should, thus, make the plans more attractive to employers than currently available defined benefit plans," the report states. The group also recommended the establishment of a Retirement Investment Account, a "national clearinghouse structure" for administering portable individual retirement accounts. Aimed at workers not eligible or covered by an employer-sponsored plan, participants would be automatically enrolled in RIA and have the ability to opt out. Alan Glickstein, a senior consultant in the Dallas office of benefits consultant Watson Wyatt, praised the group's effort to broaden and advance the discussion. Though he didn't think the report included anything groundbreaking, Glickstein did note that it's "extremely helpful to have groups like these add to the discussion, because we need everyone's thoughts on this topic." Glickstein says there were many valuable ideas contained in the report, but predicts bold action is probably years away. "The Pension Protection Act [passed in 2006] was a good framework for building for the future ... but some of the effects won't be visible for some years," he says. "What we need to do now is see how plan sponsors react to the PPA -- and continue the discussion." Any meaningful discussion on retirement, he adds, needs to seriously take into account the "800 lb. gorilla" -- Social Security. "The Conversation on Coverage has been an extraordinary process," says Karen Friedman, policy director for the Pension Rights Center in Washington and director of the initiative. "Everyone involved united under one mission -- to increase coverage ¿ and spent countless hours developing these proposals." Blain Brickhouse, a senior consulting actuary in the Greensboro office of the consulting firm Findley Davies, notes that this is a difficult time for benefits in general and retirement in particular. But while it's good to look for ways to encourage savings, Brickhouse says he doesn't believe government mandates are necessarily the way to go. "It's best handled through private sectors," he says. Glickstein agrees. While government clearly has an important role, he says, "employers have to have the flexibility to craft their own programs." The Conversation on Coverage is supported by the Ford Foundation, the Annie E. Casey Foundation and the Atlantic Philanthropies. Sponsors and co-sponsors include AARP, MetLife and Nationwide; the Employee Benefit Research Institute, Fidelity Investments, the International Association of Machinists and Aerospace Workers, the National Committee to Preserve Social Security and Medicare, Prudential Financial, the Retirement Security Project, the U.S. Chamber of Commerce, and Vanguard, the AFL-CIO, the American Academy of Actuaries, the American Benefits Institute, the American Council of Life Insurers, the Communications Workers of America, and the Service Employees International Union.
May 29, 2007 Copyright 2007© LRP Publications |
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