This is the three-pronged approach to enhancing retirement security 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 noted. Even though employees are working longer, they are living longer, so retirement will cost more and the pension provided in the past will not be adequate now.
Most employees now have a 401(k) plan, but 401(k) plans don’t guarantee retirement income, Gotbaum pointed out. If the market drops, savings is lost. In addition, employees have to guess how much they will need and how much to save. Gotbaum said employees are not good at this, and if they guess wrong, they will not find out until after retirement.In traditional pensions, employees don’t have to guess, employers figure out how much they need. In addition, traditional pensions guarantee a payment for life, Gotbaum said. In addition, pension benefits fund much of infrastructure capital and boost the economy (see “Pension Spending Supports Jobs and Economic Output”).
According to Gotbaum, PBGC’s mandate from when it was created was to encourage voluntary private pension plans. To do this, the agency first tries to preserve plans that exist. Secondly, it tries to ensure 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 that there is a goodwill and desire between the government and employers to offer pension plans.
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 noted, adding that it is important for employers to provide retirement plans.
Gotbaum suggested it is also important to offer alternatives so that as companies change 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 stated.
The vast majority of employers are offering pensions and contributing to them, Gotbaum pointed out. The PBGC thinks it is important to recognize and encourage this.Gotbaum also said the agency believes there is an unfairness in the system for PBGC premiums. For example, he noted that with auto insurance, rates are based on an individual’s own record, but employers’ PBGC premiums are raised due to actions/failures of others, and that is why the agency wants to set rates; it believes it will result in a fairer system.
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