Can retirement policy save American politics?
Something is happening in Washington D.C., and I’m feeling hopeful. There is a bipartisan effort underway around reforming the way Americans save for retirement. The proposed legislation from Sens. Rob Portman, R-Ohio, and Ben Cardin, D-Maryland, is worth exploring. So is the model.
Thirteen years ago, Congress passed the Pension Protection Act (PPA) of 2006. It was a cooperative effort – the kind that required academics, private industry leaders and lawmakers to hunker down and write something that wasn’t pie in the sky but real, and applicable.
And it’s worked. U.S. retirement assets in defined contribution plans have increased from $4.6 trillion in 2007, one year after PPA went into effect, to $8.1 trillion.1 And millennials – those entering the workforce at about the time PPA was enacted – have taken advantage of PPA provisions that allow automatic enrollment and automatic escalation. They are on track to replace 75 percent of their income in retirement compared with generation X workers, who are on track to replace 61 percent, and baby boomers, who are on track to replace 58 percent.2
Now it’s time for the next broad retirement policy reform. According to Pew Research Center, more than 30 million full-time private sector workers lack access to a workplace plan.3
Today Americans find themselves at a new crossroad in planning for financial futures as they face debt, rising healthcare costs and longer lives. About 45 million Americans carry $1.5 trillion in student loan debt. Healthcare costs are trending upward, with the average 65-year-old couple retiring in 2017 expecting to spend more than $400,000 on healthcare in retirement. And Americans today have a life expectancy of 78.7 years, which means retirement money has to stretch over many years.
Even with academics and industry leaders ringing the bell on these statistics, behavior psychologists tell us that most Americans are focused on the immediate and cannot wrap their minds around a future that seems so far away.
Sens. Portman and Cardin know that.
This “demo-publican” duo has had retirement on their minds for more than two decades. Portman now takes the reins of the Senate Finance Committee’s panel on Social Security, pensions and family policy, and Cardin has said, “Congress needs to work continually with participants, retirees and other stakeholders to make sure that retirement security is achievable – especially as the economy changes.”4
They have crafted proposed legislation – the Retirement Security and Savings Act – with 50 provisions aimed at helping Americans understand just how close the future is. This duo’s latest effort builds on the kind of longstanding public-private partnerships that gave us PPA. Their proposal encourages higher savings rates, expands coverage, promotes important lifetime income options and reduces administrative burdens. These changes in policy open doors for small business and give mid-size and big companies room to explore how to offer more to their workers than the immediate – how to offer them a future.
There are more efforts too that are following the same bipartisan model – the Retirement Enhancement and Saving Act, which was reintroduced this year, and the Retirement Security and Savings Act of 2019, which was introduced in 2018 and could be reintroduced this year. Both of these proposals will likely be considered first – followed by Portman and Cardin’s proposal.
These united efforts should be center stage. I see them as the continued, broader bipartisan debate around retirement policy. And I see them as a way forward for Americans working on improving their retirement security.
Few topics in current policy deliberations enjoy the same level of bipartisan support and agreement as retirement. This is no accident. Policy makers and the retirement industry have worked together for a long time to develop understanding and seek common goals. This collaboration inspires hope.
We need to keep moving forward on such reform. The stakes are high. Industry and Congress should continue to work together to ensure retirement public policy evolves to meet the ever-changing needs of retirees.
If we can find ways to come together to solve the retirement challenges covered in such reform, maybe there’s hope we can find a path forward to resolve that other retirement issue — Social Security.
Edmund F. Murphy III is President & CEO of Empower Retirement