The Center for American Progress, a liberal think tank with close ties to the Obama administration, issued a deeply critical report Aug. 20 on the voluntary employer-based private retirement system. The report concludes that the current situation is so bad for individuals that the entire system needs to be dismantled and replaced with a new “collective defined contribution” arrangement that would allow individuals to retire with dignity. The structure of this new “collective defined contribution” arrangement closely resembles a proposal released last summer by Sen. Tom Harkin (D-IA), Chairman of the Senate Health, Education, Labor, and Pensions Committee.
The Harkin and CAP proposals require nothing less than every employer in the United States to make automatic payroll deductions on behalf of every employee in the United States for retirement, unless the employees choose to opt out of the arrangement. The money generated from these automatic payroll deductions would be funneled to “non-profit organizations run by independent boards” that would “professionally invest” the proceeds. Participants would not have any control over the contents of these investments; instead, they would just receive “notional account” balances each year during the accumulation phase. During the payout phase, these “notional account” balances would be transferred to an “annuity fund” that would pay out an annuity to participants in retirement.
Some details of the CAP proposal differ in important ways from the Harkin proposal. For one, the Harkin proposal mandates that employers “make modest contributions” to the non-profit organization on behalf of employees. The CAP proposal does not envision such mandatory employer contributions. The Harkin proposal intends to coordinate with the existing private pension system by mandating the arrangement only on employers that “do not offer a workplace retirement plan with automatic enrollment and a minimum level of employer contributions.” Presumably, all other employers could continue with their current arrangements. The CAP proposal, on the other hand, envisions that its arrangement would replace the existing system, stating that “plans would be available to all workers regardless of whether their employer offered retirement benefits prior to the introduction of the plan.”
ASPPA and NAPA believe strongly that the voluntary employer-based private retirement system has proven effective in getting Americans of all stripes to adequately save for retirement. While the current system can be improved, proposals that require all Americans to effectively cede control of their retirement savings to a quasi-governmental entity for life does not represent a practical solution.
Andrew Remo is ASPPA’s Congressional Affairs Manager.
