Last week, I released a proposal to create a new type of privately run retirement plan (see "Harkin Retirement System Proposal Gets Mixed Reviews"). The idea is to make pensions attractive again by eliminating the burden on and risk for employers but still provide many of the benefits of traditional pensions, such as lifetime income and professional management. I know that sounds like a lofty goal, but please bear with me.
Most people agree that, as a country, we are woefully unprepared for retirement. One estimate is that we have a retirement income deficit of $6.6 trillion. And half of the American population has less than $10,000 in savings. Our lack of preparedness is going to put significant strain on our families, communities, and social safety net as we try to support older Americans that are unable to afford basic living expenses.
The retirement crisis is due, in part, to the disappearance of traditional pensions. We know from decades of experience that pension plans are one of the most effective ways for people to prepare for retirement. Although coverage was never universal, families with access to a pension are significantly less likely to fall into poverty during retirement.
That is not to say 401(k)s cannot help people prepare for retirement. Saving is important, after all, and 401(k)s can be a good way to build up a nest egg. However, people need more than just an easy way to save. They need access to pooled, professional management and some protection from market and longevity risk. Those are things pensions provide without requiring participants to become investment experts. But we all know the pension system has been in decline for decades. Running a pension is just too much of a headache for most employers. That is especially true for small-business owners who need to focus on inventory and cash flow, not funding notices and adjusted funding target attainment percentages (AFTAPs). That is why I am proposing something new—USA Retirement Funds.