This week, President Obama unveiled his economic fixes for the middle-class. Among them was a proposal for Automatic IRAs, which he has championed since the Administration’s early days. While the Automatic IRA is a first step in expanding coverage for those without an employer-based plan, a recent Bloomberg View article, “Experts Found the U.S. Retirement Fix. In Canada”, highlights two other more comprehensive plans that we hope the President will also consider supporting.
The article cites a new report by the American Academy of Actuaries which gave high marks to two retirement plans that it rated superior (A-) to Auto IRAs and 401(k)s.
New Brunswick’s Shared Risk Pension Model is already in effect for public employees in the province of New Brunswick, Canada. It is a defined benefit pension plan that has some built-in flexibility. It provides for two levels of benefits – one guaranteed and the other based on the fund’s performance – and pays benefits in lifetime monthly installments. The Pension Rights Center has long been intrigued by this kind of approach.
The other highly-rated plan is the USA Retirement Funds proposal, which now-retired Senator Tom Harkin introduced last year. USA Retirement Funds are independently-run pension programs. Employers who now don’t have a retirement plan are required to automatically enroll their employees, who can then choose to opt out. Under the proposal an employer’s only responsibility is to transmit contributions to the funds. Employers may also contribute to the plan.
The money put into USA Retirement Funds is pooled and professionally managed. The investment and longevity risks are shared by everyone participating in the funds – improving on 401(K) plans where these risks are borne by each individual. At retirement, the funds pay out monthly benefits that can’t be outlived. The Pension Rights Center is working with an array of organizations to build support for this proposal, which is expected to be reintroduced in Congress in coming months.
The Bloomberg View article states, “The takeaway is that fixing the U.S. retirement system isn’t impossible. There are models to follow that ought to fit the economic and demographic problems the U.S. faces.”