Speaking at a U.S. Chamber of Commerce/AARP conference July 26, Putnam CEO Robert Reynolds offered a three-step plan to improve retirement readiness:
1. Go “full-auto.” Make the best practices set forth in the Pension Protection Act the norm — auto-enrollment, re-enrollment annually, auto escalation and automatic qualified TDFs or balanced funds.
2. Expand access to workplace savings plans. Existing proposals like auto-IRAs or simplified 401(k)s are inexpensive and effective, and should be encouraged through tax incentives and protected from liability via safe harbors.
3. Boost savings rates. Allowing people to believe that saving 3% or 5% (or even 7%) doesn’t serve anyone well. Reynolds suggested a lofty goal: a new 10%-plus baseline for retirement savings.
To support the 10%-plus baseline, Reynolds cited research by Putnam on income-replacement percentages by various groups:
• people who don’t have access to a workplace retirement plan are on track to replace 41% of their income
• workers eligible for employer retirement plans: 73%
• participants in 401(k) plans: 79%
• participants in 401(k) plans using auto-enrollment features: 91%
• active participants in 401(k) plans using auto-escalation contribution features: 95%
• participants in 401(k) plans who defer at least 10% of their salaries: 106%
Easier said than done, to be sure. But what’s wrong with having a stretch goal?
