|Illustration by Bill Mayer|
Individuals need to save more; employers must provide
retirement plans and contribute to them; and the government should work to
strengthen the retirement industry and provide a safety net.
This is the three-pronged approach to enhancing retirement
security that was presented by Pension Benefit Guaranty Corporation (PBGC)
Director Josh Gotbaum at a National Press Club Newsmaker press conference.
Some say all it takes to solve the retirement savings crisis
is for people to work longer, but they are working longer and are still not
confident, Gotbaum remarked. Although many employees are working to more
advanced ages, many are also living longer, so retirement will cost more and
the pension provided in the past will be inadequate.
Most employees now have a 401(k) plan, but these do not
guarantee retirement income, Gotbaum said. If the market drops, savings are
lost; additionally, employees must guess how much they will need and how much to
save. Gotbaum noted that employees have trouble doing this, and if they guess
wrong, they will find out too late—after they retire.
In traditional pensions, employees do not have to
guess—their employers calculate how much they will need. Furthermore,
traditional pensions guarantee a payment for life, Gotbaum said, and pension
benefits fund much of infrastructure capital and boost the economy.
According to Gotbaum, PBGC’s mandate since its beginnings
has been to encourage voluntary private pension plans. To do this, the agency
first tries to preserve plans that exist. Secondly, it tries to ensure that the
government does not make it harder for employers to offer pensions; PBGC
considers how to regulate the pension industry and set standards. Finally, the
agency works to clear the air, so that goodwill exists between the government
and employers, creating an environment favorable for pension planning.
However, the government does not require employers to
provide traditional pensions, so most individuals need to save more. Gotbaum
said some employers recognize the downside of 401(k)s and are looking for a
lifetime income option or moving to a hybrid pension plan. These are good
moves, he added, stressing the importance of employers providing retirement plans.
He also mentioned the importance of offering alternatives,
so that as companies or situations change, individuals have plan choices. “We
are not going to enhance retirement security by sticking to old models; what we
must do is enhance offerings, so employers have choices,” he said.
The vast majority of employers do offer pensions and
contribute to them, Gotbaum noted. The PBGC thinks it is important to recognize
and encourage this.
He also said that the agency perceives unfairness in the
system regarding PBGC premiums. Compared to automobile insurance premiums,
which reflect the insured’s own record, employers’ PBGC premiums are raised due
to the actions or failures of others, he said. That is the reason the agency
wants to set rates; it believes a fairer system will result.