Labor economist and pension reform advocate Teresa Ghilarducci got into pension issues by default. As a 19-year-old graduate student in economics, Ms. Ghilarducci started working at the University of California's Labor Research Center in Berkeley, where in the late 1970s pension issues were disdained by other students more interested in modeling inflation.
But with a mother whose new, unionized job included a defined benefit pension plan, the economic security behind pensions made sense to her. “I got in early in a growth area,” she says.
As she pursued her career, moving to a post as an economics professor at the University of Notre Dame and director of the Higgins Labor Research Center there, she continued to feel like a lone voice on the subject of pension security. “All the (research) rewards were in portfolio management and diversification, but pensions really match the technical side (of economics) with my interest in social justice issues.”
During the past two decades, she has seen interest shift toward retirement security as it becomes a personal concern to more people in both the private and public sectors.
With experience as a former member of California Gov. Arnold Schwarz-enegger's Public Employee Post Employment Benefits Commission and as a former trustee helping the Indiana Public Retirement System address pension design challenges, Ms. Ghilarducci is often called to testify before Congress and state legislatures.
Her proposal for guaranteed retirement accounts, with professional money management and guaranteed annuities, led to her current research project, “Beyond the 401(k): Guaranteeing Retirement Security.”
Is the pension crisis getting better or worse? It's definitely getting worse. People are not saving enough and the financial crisis wiped out about five years of investment gains and their job security. They lost jobs or had their hours cut back and couldn't contribute to 401(k) plans when stocks were at very low prices.
After almost 30 years' studying the system, the bottom line is that the voluntary system doesn't work. We spend way too much time trying to incent employers and employees to put aside money for retirement, but coverage under any type of retirement plan - DB or DC — is still around 50% of the workforce, and it has been that way for decades. American taxpayers spend way too much money — around $170 billion a year — in tax breaks, incentivizing the voluntary system, and it has not worked.
There are lots of problems — from decreasing coverage to increasing investment risk. What are the answers? The answer is to mandate saving for retirement at the workplace and give people a safe place to invest their money until retirement. You can have a public option, like 529 plans.
Look to other countries, where they have mandated contributions and annuities, and professional money managers. It works.
Like the advice about eating well — “eat less, mostly plants” — my advice for comprehensive retirement income security policy is, “mandate pensions, mostly annuities.” We mandate Social Security — imagine the people who would opt out when they need the money for short-term desires, only to be rueful later. We need guaranteed retirement accounts. If the feds won't do it, states will.
Can it work in the United States? Oh, absolutely. We're on our way. Look at California and Oregon. I've been talking with people in Connecticut, Maryland, New York and other states. My audiences are governors and treasurers, mayors and city controllers: They know they will be stuck with the bill when their older residents are poor, near poor and needy. By letting all workers use the state or federal pension systems, we are allowing all workers to have access to the best money managers in the world, American money managers. One of my very first goals is to make sure people have access to professional money managers, with balanced and diversified portfolios.
Before we get to mandated retirement savings, what should employers do now? I would provide a 401(k), but I would put cotton wool in my ears to prevent me from hearing the Siren song of the brokers, and offer only low-fee, steady-performing products.
You were an advisory board member of the Pension Benefit Guaranty Corp. until 2002. If you were there today, what would you like to see? I would approve of much of what Josh Gotbaum is doing in terms of creating a higher priority for the PBGC in bankruptcy and following through with the early-warning system from the 1980s ... The system allowed the PBGC to negotiate with companies before they went bankrupt in order to minimize or prevent the pension losses. That makes good sense. The PBGC became a partner with the Department of Labor, corporations, and indirectly, even the courts to minimize the harm in bankruptcy.
I would love to work with the good folks on the board and the staff to create some plan design innovations ... help employers of all sizes see the benefit in a DB/DC type hybrid pension plans. We should realize that everyone needs to supplement their Social Security by saving directly from their paycheck. Employers always need ways to incent loyal employees, to attract new ones and to let employees whose time has come to leave. I would work hard to create a PBGC template for a progressive cash balance plan that can substitute for the seriously flawed 401(k) plan.
Where are we headed now? We're not going to ever have the defined benefit-only system. There was too much responsibility on companies who weren't going to last a worker's career. We always said at the PBGC, the future is going to be hybrid plans with less choice of funds, and more mindful to create systems that let people accumulate retirement assets (through the workplace) with low fees and easy access to annuities.
You've helped big public pension systems with big problems. What advice would you say now to the troubled ones? Public pension plans are often older than any corporate plan and will survive longer than most. They have an ordinary responsibility to be well managed and to pay out decent benefits. They have the ordinary responsibility of being well governed by intelligent trustees and executives and staff. This ordinary responsibility is actually extraordinarily difficult to do, but most pension plans do it well. If I were honored to run a public pension plan, I would endorse proposals to accept contributions from individuals who live in the state and who might move to the state to help manage their retirement accounts. I would endorse every pension plan in the public sector to take on the policies being considered in California, Oregon and Massachusetts and other states.
I would pay very close attention to my communication strategies with public employers and public employees. I would spend a lot of my budget helping every employee explain to the public, their family members and their community how well managed their pension plan is.
I would pay very close attention to my consultants and their value added.
You have been called “the most dangerous woman in America” by conservatives including Rush Limbaugh for advocating government retirement accounts. Why? Because I threaten people with deep pockets and narrow monied interests. n
This article originally appeared in the August 5, 2013 print issue as, "Tireless voice for pension security".