The Retirement Security Crisis and a Plan to Solve It

August 6, 2012 ( - I want to rebuild the pension system, but I need your help.

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. 

Pension plans have traditionally placed all of the risk—primarily investment and longevity risk—on employers, who responded by moving away from pensions and toward 401(k)s. However, that move did not eliminate the risk—it just shifted the risk onto individuals who are even less able to bear it.      

USA Retirement Funds would make offering a pension benefit more attractive by eliminating all the risk to employers. Instead of shifting all the risk to individuals, USA Retirement Funds would act like insurance and spread the risk across all participants in the plan. That means benefit levels would have some flexibility to adjust to long-term market conditions, but the risk on any one individual is greatly reduced.      

Just to be clear, USA Retirement Funds would be managed by the private sector and overseen by a board of qualified trustees. There would not be a government guarantee, and the proposal relies on market forces—for example, competition between USA Retirement Funds—to keep costs low.      

Many employers currently offer excellent benefits, and they could certainly keep those plans. However, we know that about half the work force lacks access to a retirement plan, and those people are statistically much less likely to save for retirement. Therefore, under my proposal, employers who do not offer a pension or a 401(k)—without automatic enrollment and a match—would have to automatically enroll their employees in a “default” USA Retirement Fund and make modest contributions. Employees could opt out if they wanted.    

After two years of hearings and countless discussions with industry experts, I believe USA Retirement Funds are a win-win for working families and the employers. However, I intend for my proposal to be the starting place in an evolving discussion, and I want to work with the plan sponsor community to find practical solutions that improve retirement security for everyone. If you have ideas, suggestions or anything else to share, I encourage you to contact me at 


U.S. Senator Tom Harkin (D-Iowa), Chairman, Senate Health, Education, Labor and Pensions Committee