Pension Reform: Beyond the 401(k)

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Pension Reform Beyond the 401(k)

• Teresa Ghilarducci
• Irene and Bernard Schwartz Professor of
  Economics
• New School for Social Research
• Beyond the 401(k) Project funded by the
  Rockefeller Foundation
• (with assistance from, Daniela Arias, Eloy
  Fisher, Bridget Fisher, Robbie
• Hiltonsmith, David Stubbs)

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People want to head for a safe retirement, but we
need to help them get there
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Employer pensions are failingMunnell (2006)
Butrica, Iams Smith (2003)
Sources of income to the elderly middle class 2003 2023
Assets (not including housing) 13 12
Social Security 38 41
Employer Pensions (DB and DC Plans) 25 18
Earnings ! 13 18
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People want a retirement solution

• 83 say government should guarantee pensions.
• 81 say government should guarantee healthcare.
• 78 say government should raise minimum wage.

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Expensive pension subsidies are failing
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Tax Expenditures can be madeEffective,
Efficient and Fair
6 of taxpayers get 50 of all tax subsidies !!!
Current system
401(k)s tax breaks exceed savings !!!
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What is the solution? Guaranteed Pensions

• 5 of pay is split evenly between the employer
  and employee.
• Everyone gets a 600 tax credit which is adjusted
  for inflation

CONTRIBUTIONS
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What is the solution? Guaranteed Pensions

• Professional Board invests the money in private
  markets managed by a Guaranteed Retirement Fund.
• The guarantee will be revenue-neutral.

INVESTMENTS
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What is the solution? Guaranteed Pensions

• GRAs will provide a yearly payout to the
  individual adjusted for inflation.
• The accumulated funds cannot be withdrawn before
  retirement.

PAYOUT AT RETIREMENT
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What is the solution? Guaranteed Pensions
SAFE AND SECURE RETIREMENT
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Retirement Security Under a Guaranteed Retirement
Account(Source http//www.sharedprosperity.org/b
p204/bp204.pdf)
Characteristics of a Good Pension System 401(k) Obamas Auto IRA GRAs
Universal coverage No Almost Yes
Portable Yes Yes Yes
Pooled assets, efficiently administered No No Yes
Shared responsibility No No Yes
Adequate pensions No No Yes
Targeted government aid No Almost Yes
Annuities No No Yes
Payout at retirement No No Yes
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Everybody wins!

• Workers with Pensions and 401(k)s
• Wall Street Firms
• Private Employers with Pensions and 401(k)s.
• Public Employers with Pensions in Crises.
• Workers without Pensions.