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‘Changes in the Law’ Key to Retirement Readiness

There have to be changes in the law, and “it needs to be done quickly,” argued former North Dakota Senator and Chairman of the Senate Budget Committee Kent Conrad at an Oct. 11 Bipartisan Policy Center event that concerned Retirement readiness and policies affecting it, including the health of the Social Security and Medicare Trust Funds.

At “An Issue for All Ages: Retirement in America,” Conrad and other panelists offered their take on retirement readiness and the Social Security Trust Fund and its health.

Jason Fichtner, Senior Research Fellow at George Mason University’s Mercatus Center, characterized Rothification as a “very poor” way to build retirement savings. He said that it may be a “good option” as an immediate revenue raiser, but would end up “costing the government money down the road,” an assessment with which State Street Global Advisors CEO and President Ron O’Hanley agreed. Fichtner said that the government needs to “stop trying to find gimmicks.”

Arguing that small employers are key, former North Dakota Senator and Chairman of the Senate Budget Committee Kent Conrad said he believes that they are central to any kind of mandate for coverage working. State Street Global Advisors CEO and President Ron O’Hanley agreed, citing the “not insignificant” cost of setting up plans and fear of litigation as factors inhibiting them. He added that in his view, open MEPs would help.

Divorced from Financial Reality

“Right now we’re more divorced from financial reality than at any time I can remember,” said Conrad, warning that people are not facing up to the debt burden, which he characterized as “unsustainable.” O’Hanley similarly remarked, “We all know what the problem is, and what’s going to happen if we don’t act on it.”

“We are now at the point where Social Security’s actuarial gap is so large, it’s unclear if it even can be closed,” said Charles Blahaus, the J. Fish and Lillian F. Smith Chair and Senior Research Strategist at the Mercatus Center and a former public trustee of the Social Security and Medicare Trust Funds, calling it “very troubling.” He and fellow trust fund trustee and Urban Institute Distinguished Fellow and President Emeritus Robert Reischauer warned that the trust funds have their own pitfalls. Reischauer contends that the trust fund has led to the belief that he situation is more sustainable than it is. The trust fund is “useful to a degree but highly inadequate” in gauging the health if the overall system, said Blahaus.

The gap and the challenges Social Security face, as well as the need for increased retirement savings overall, affect real people, other panelists reminded. Among then was former Social Security Advisory Board Chairman Sylvester Schieber, who noted, “We need to recognize that very low earners are not going to be able to save adequately on their own.”

Eric Rodriguez, Vice President of the Office of Research, Advocacy and Legislation for UnidosUS, painted it in more stark terms. “We have a large and staggering” issue regarding retirement savings in among members of minority groups, he remarked, adding that “access is only part of the issue”; participation is also a concern. And Urban Institute Fellow Kilolo Kijakazi struck a similar tone, saying that that the gap in retirement savings minorities experience increases sharply with age, and that the drivers of this inequity “are structural in nature,” and derive in part from occupational segregation.

What to Do?

Eve Rips, Director of Regional Strategy for Young Invincibles, cautioned that knowledge and understanding among those politicians serve is critical to building political support for action to build retirement savings. Education and retirement issues are “politics-infused,” she said. “The first step to political engagement is often consumer education,” she said, but added that “education efforts are inadequate,” especially in equipping Millennials to prepare for retirement.

If we are going to address Social Security, said Conrad, “that means sacrifice.” And he means shared sacrifice, saying, “The only way this works is that everybody helps out.” Kijakazi looked toward equity as well, but with a different twist — she argued for increasing opportunity. “Given the opportunity,” she said, “people of color also participate heavily in retirement savings plans.”

For his part, Schieber thinks that adjusting Social Security itself offers part of the answer to boosting savings, suggesting that changing the spousal benefit to a “true survivor benefit” would help.

O’Hanley argued that any action by the government should be comprehensive, saying “I would not piecemeal this.” But he also called for whatever is done to make compliance and growth in savings easier. “Make it simple. Make it as simple as paying taxes,” said O’Hanley.

The current political climate, says Conrad, is “so toxic that it is very difficult to have a rational discussion about anything” beyond the news cycle. “America is about big things,” he said. “I am always an optimist, and I’m always disappointed,” said O’Hanley. “There are some hard choices to be made,” he said, adding, “This is the time to start acting.”