Think Tank Proposes New Retirement Plan

The proposed Secure, Accessible, Flexible and Efficient (SAFE) Retirement Plan is outlined in the CAP report “American Retirement Savings Could Be Much Better.” The SAFE Plan would combine elements of a traditional defined benefit pension—including regular lifetime payments in retirement, professional management and pooled investing—with elements of a defined contribution plan, such as predictable costs for employers and portability for workers.

According to the report, a CAP actuarial analysis found the SAFE Plan “significantly outperforms both 401(k)s and IRAs on cost and risk measures.” The report also found SAFE Plan participants would have to contribute only half as much of their paycheck as those saving in a 401(k) plan to have the same likelihood of maintaining their standard of living upon retirement. In addition, workers with a SAFE Plan are nearly 2.3 times as likely to maintain their standard of living in retirement as workers with a typical 401(k) account making identical contributions, the think tank contends.

Key features of the SAFE Plan, according to CAP, would include:

• Being organized as nonprofit organizations, run by independent boards with significant participant representation;
• Being available to all workers regardless of whether their employer offered retirement benefits prior to the introduction of the plan;
• Investments being professionally managed, with plan boards able to contract with professional investment management providers;
• Benefits being portable when workers change jobs and payable for life;
• Each worker selecting a plan, and his or her employer would only need to facilitate enrollment and any required payroll deductions. If employers make contributions, employer costs would be fixed as a percentage of pay, and employers would not be faced with administrative or fiduciary obligations;
• The risks being spread among workers and retirees rather than borne solely by employers;
• While payout levels would not be guaranteed, the plan would be far less risky for workers and retirees than a 401(k), with a higher likelihood of achieving target benefit levels;
• Being more efficient than a 401(k) in achieving required investment returns at a low cost; and
• Not requiring employers to take on the risk of guaranteeing returns as they must with traditional pensions. A SAFE Plan would not impose any additional costs or risk on government.

“A SAFE Plan incorporates a number of improvements [to the current 401(k) system] and offers a substantially better way to save for retirement,” the report authors wrote.

An introduction and summary of the report can be found here. The full report can be found here.