I would like to point to a typo in your editorial titled “No need for new DC plan” in the Nov. 26 issue of Pensions & Investments. The word “No” was inadvertently added to the header I am sure you intended it to read: “Need for new DC plan.” Your editorial makes clear why P&I should be supporting the brave, inspired pension initiative called USA Retirement Funds by Sen. Harkin, chair of the Senate Committee on Health, Education, Labor, and Pensions.
For example, you called the current U.S. retirement income system “shaky.” You noted that defined benefit plans are fading away in the private sector, and are severely underfunded in the public sector. You could also have noted that over half of the some 130 million American private-sector workers do not have an employment-based pension plan of any kind. On the proposed features of USA Retirement Funds, you approvingly noted that they would be licensed, pooled, privately run by qualified boards, and at the same time would eliminate fiduciary duties for employers. Finally, you noted that in a survey of 529 of P&I's knowledgeable readers, 73% were in favor of the USA Retirement Funds initiative.
At the end of your editorial, you opined that Sen. Harkin's proposal “isn't ready for prime time.” You are right, of course. When you rewrite your editorial with the corrected title, you might reference the journey of the British version of the Harkin proposal called National Employment Savings Trust, or NEST for short. After considerable national debate in the U.K., NEST was created in the Pensions Act of 2008. Only this year, after further extensive debate and research on how to best design the auto-enrollment protocol, and on how to best put the NEST pieces together, has the scheme gone operational. Even now, some design features are still being researched and debated. The roles of guarantees, risk pooling, annuitization and member communications are examples.
So indeed, much work remains to be done before the USA Retirement Funds initiative is ready for prime time. I encourage P&I to become a proactive participant in guiding this visionary project to a successful launch three to four years from now. The financial security of millions of American workers depends on it.
Director, Rotman International Centre for
Pension Management, Rotman School of
Management, University of Toronto
This article originally appeared in the February 4, 2013 print issue as, "DC plan initiative presents a visionary pooled approach".