Magazine

Published in October 2012

Retirement Savings Reform

By PLANSPONSOR staff | October 2012
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Don’t expect any real discussion until after the election

As we inch closer to November, it is becoming clear that the upcoming elections need to be monitored by all within the retirement services industry. Over the last few months, both parties have discussed reforming the Tax Code in an effort to broaden the revenue base, adjust income tax rates—higher or lower—and eliminate various deductions and tax loopholes. Tax reform is under consideration because of public pressure to deal with the federal budget deficit. Several independent commissions have set the stage for major tax reform by suggesting limiting or eliminating many tax expenditures, such as that for retirement savings, which has been identified as one of the top three most expensive.

These tax and budgetary issues also come along at a time when the U.S. lacks a cogent and structured retirement policy. Since the general shift away from defined benefit (DB) plans to defined contribution (DC) plans, Congress has made numerous attempts to secure greater retirement security for seniors. Accomplishing this goal, however, has been a challenge. Congress has lacked the foresight to establish a retirement policy aimed at providing an efficient, comprehensible program for the retirement security of the American work force. In an aim to spur campaign conversation this fall, one of the latest retirement proposals was made by Sen. Tom Harkin, who offered the creation of a new type of pension plan to address “America’s retirement crisis.” The plan includes a requirement for employers not already offering retirement savings plans to automatically enroll employees in a new set of “Universal, Secure and Adaptable” (USA) Retirement Funds. These USA Funds would be privately and professionally managed under the oversight of a board of trustees, which would include representatives of employees, employers and retirees.

Despite the uncertainty regarding whether retirement savings will be on the table when dealing with tax reform, and the absence of a coherent national retirement savings policy, neither presidential candidate has thus far offered specific proposals on how he would manage the current problems facing the private retirement system. Likewise, the candidates have provided little information about how they plan on handling the national Social Security crisis.