The heart of his plan is a new system of privately-run hybrid pension plans, which incorporate many of the benefits of traditional pensions while substantially reducing the burden on employers. Harkin’s proposal requires that individuals who are not covered by an employer-sponsored retirement plan be automatically enrolled in regulated, privately-run retirement funds. This concerns David John, senior research fellow at the Heritage Foundation.
“We’re delighted the senator is looking at the issue,” he told PLANSPONSOR. “At the same time, it has some fairly significant weaknesses compared to some of the other proposals that are out there. The problems that we’ve got with it include the fact that it appears the senator is creating a large central pension plan that will directly compete with many of the existing plans.”
Others see the plan as a solution for the retirement savings crisis.
“The report makes a compelling case for a new private retirement system that would provide a meaningful supplement to Social Security for the millions of employees whose employers do not offer pensions or retirement savings plans,” said Karen Friedman, the Pension Rights Center’s executive vice president and policy director. “The report also makes common-sense recommendations for strengthening Social Security, the foundation of our nation’s retirement system. Together, these measures would help ensure that all Americans can retire with security and dignity.”The report is available here.
The report also includes suggestions to strengthen Social Security in three key ways:
- Providing improved benefits for all retirees, particularly workers with very low lifetime earnings;
- Using a more accurate method for calculating cost-of-living adjustments to better help retirees weather inflation and increases in health care costs; and
- Strengthening the program’s finances by phasing out the provisions that allow high-income employees to avoid making payroll tax contributions on all of their wages.
“The Pension Rights Center salutes Senator Harkin for his vision, creativity, and courage,” Friedman said. “We urge the Senator’s colleagues on both sides of the aisle and in both Houses of Congress to read this report, join the discussion, and work with the Senator to solve the retirement crisis.”
The California Public Employees’ Retirement System (CalPERS) supports Harkin's proposal to find solutions to ensure a proper retirement for all Americans. It believes many of the attributes of his proposal are what make defined benefit plans successful in ensuring retirement security, and the decrease of DB plans in the private sector is a retreat from what CalPERS believes is as an effective way to offer secure retirements.
Anne Stausboll, Chief Executive Officer for CalPERS said in a statement, "In recent decades, defined benefit pension coverage has declined for private sector workers. This has led to a world of haves and have-nots and has driven some to try and dismantle public sector defined benefit plans. This is not the right answer.
"Defined benefit plans are the cornerstone of retirement security. They are cost effective for both employers and employees. For employers, they are a cost effective tool for recruitment and retention. And for employees, they ensure adequate and predictable income in retirement. Research has shown that a defined benefit plan can offer the same benefit as a defined contribution plan for an almost fifty percent lower cost. This is a result of pooled risk, professional asset management, and lower fees.
"Although there are legitimate discussions to be had about the particulars of pension plans, we believe that defined benefit plans should not be discarded.
"CalPERS is committed to supporting retirement security and dignity and we welcome the discussion that will surround Senator Harkin's report."