Writing today in the Wall Street Journal, Robert Pozen, chairman of MFS Investment Management, offers a simple proposal to boost Americans' savings for retirement:

A bipartisan Congress should harness these forces of inertia and mandate that all employers not otherwise offering a retirement plan establish a check-off IRA (CIRA) for employees. An employer could take out a minimum percentage (e.g., 3%) of their employees' wages from their paychecks, tax deductible in the year of contribution. But employees would have 60 days from their enrollment date to increase their contribution rate, or to opt out completely of any payroll deduction. The employer utilizing this auto-enrollment approach would be protected from legal liability by a safe harbor, if the employer followed specified procedures and provided specified disclosures.

A concrete proposal for this kind of automatic IRA already exists. It's called, conveniently enough, the Automatic IRA, and it was proposed earlier this year by a diverse pair that commands strong bipartisan respect: Heritage's David John and Brookings' J. Mark Iwry. In addition to legal indemnification for employers offering Auto-IRAs, the pair propose temporary tax credits to tempt small employers to offer the option to their employees.

As Pozen points out, financial institutions would jump at the opportunity to administer auto-IRA-type programs, and workers would enjoy full portability of their accounts as they move between jobs.

It doesn't matter which party is in charge of Congress. This is an idea that's ready for Congress's consideration.

Posted by Andrew Grossman at 02:54 PM | Permalink | TrackBacks (0)

The Pension Benefit Guaranty Corp. (PBGC) is in the hole for $18.1 billion dollars this year. Believe it or not, that's the good news. Last year its shortfall was $22.8 billion.

The PBGC is the government entity that takes over failing defined benefit pensions. These are the kinds of pensions that your grandfather's generation received: put in 40 years at the same job and you get a monthly stipend for life. Today most workers use defined contribution accounts--like 401ks--but a few industries still offer the old kind of pensions. And a lot of those industries have been going belly up in recent years. That's when the PBGC takes over their pension obligations.

As the article linked above reports, a good part of the reason the PBGC is in better shape this year is legislation passed earlier this year that provides more money to the PBGC from the companies operating these pensions. In fact, one specific provision is the cause of most of the improvement:

PBGC mainly attributed the shrinking deficit to a provision in the new pension law that carves out special treatment for the airline industry, giving airlines that are in bankruptcy court and have frozen their pension plans extra time for their pension plans to become financially whole.

To call this misleading would be an understatement. The new law gives airlines special treatment that could make the total cost to taxpayers of their failed pension plans even higher than before. David John explains:

The special treatment provision would allow airline pension plans to fully fund their pension promises over either 17 years or 10 years instead of the 7-year period that would be required for pension plans in other industries....

The special treatment gives the airlines two options: Either freeze the pension plan so that no new benefits are credited to employees or allow employees to build pension benefits but pay for those new benefit promises on an expedited basis. In either case, under the language that was included in the Senate bill, the current unfunded pension promises could be funded over 17 years using a much higher interest rate (8.85 percent) than the rate that other pension plans would be required to use. As a result, airline pension plans not only would have much longer to pay for the benefits, but also would have to contribute less money to be considered fully funded....

On top of that, even if airline pension plans do freeze their benefits, they will continue to pay out full promised benefits to current retirees and close to full promised benefits to employees who retire early within that 17-year period. However, their pension plans’ underfunding would not be significantly reduced for many years. Thus, if an airline filed for bankruptcy again—and many of them have filed for bankruptcy a number of times—its pension plan could be even more severely underfunded than it is now.

And even if the worst is avoided, the new law won't completely fill the PBGC's funding gap. This story isn't over yet.

Posted by Andrew Grossman at 02:00 PM | Permalink | TrackBacks (0)

The bipartisan Concord Coalition today reacts to some of the rhetoric that has spewed forth in recent days on Social Security Reform. It's a problem, the Concord Coalition notes, on both sides of the aisle.

The worrisome rhetoric is that which dismisses a idea for reform outright. Lawmakers may have to consider ideas they don't particularly like if they want to do something about Social Security. As the saying goes, everything must be "on the table." The Concord Coalition's Ed Lorenzen and Tori Gorman write,

While it is easy for critics to attack specific proposals for reform and make promises about preserving benefit promises or opposing taxes, it is difficult to put together a plan that puts Social Security on a sound financial footing. Finding a solution will require legislators from both parties to come together and consider all possible solutions.

Posted by J. Lawrence Scholer at 04:51 PM | Permalink | TrackBacks (0)

Students for Saving Social Security (S4) held an intern-friendly event on the Hill today aimed at getting “their generation” amped up for the next attempt to reform Social Security. A crowd of about 200 filled the meeting room in the Hart Senate Office Building, drawn by a combination of political star power (speakers included Sen. Jim DeMint (R-SC) and Reps. Steve King (R-IA) and Jim Kolbe (R-AZ)) and the promise of a free lunch for the first 150 in the room (a very intern-friendly event, no?).

The theme of the event: The current Social Security system is doomed to fail today’s young workers, who can expect to receive only pennies on the dollar of their retirement taxes.

S4 spokesman Jo Jensen stressed that it falls to today’s young people to insist that Congress stop spending their retirement taxes and create a system of personal accounts that will let today’s workers provide a financially secure retirement for themselves.

This theme was echoed by Heritage Foundation Social Security guru David John, as well as speakers from Accuracy in Academia, For Our Grandchildren, FreedomWorks, the Independent Women’s Forum, Americans for Prosperity, and 60 Plus.

The event doubled as a recruitment rally for S4, a non-partisan grassroots network of pro-reform activists with chapters on more than 280 college campuses nationwide. Participants left with background information and talking points about Social Security, as well as political campaign-style stickers. The crowd favorite: a sticker with “Don’t get” written next to a giant picture of a screw. Here is the t-shirt version--very attractive!

Posted by Andrew Grossman at 03:01 PM | Permalink | TrackBacks (0)