The new interest in creating ways for more employees to build retirement accounts comes too late for many of the baby-boom generation in the private sector, but might be just in time for the echo-boom generation, and for that reason should be supported.
The baby-boom generation, defined as those born between 1946 and 1964, are now between 51 and 70 years old. While many of the oldest members of the generation had pension coverage through defined benefit plans, the youngest members of the group often saw the defined benefit plans of their employers closed to new members or frozen before or during the early parts of their careers and replaced by defined contribution plans. These changes placed the burden of saving and investing on employees, and often provided less-generous benefits.
Many who worked for small and medium-sized companies had no retirement plan, and most did not take advantage of the availability of individual retirement accounts. The generation between the baby boomers and the echo boomers (defined as those born in the 1980s and 1990s), also found themselves short of retirement plan options.
At present, one in three workers does not have access to a retirement savings plan, including one in two workers at firms with fewer than 50 employees. Part-time, temporary and contract workers generally are not covered by employer-sponsored plans, and fewer than one in 10 establish an individual retirement account on their own.
One of the causes of this change in the level and structure of retirement provision in the private sector is the change in the nature of employment driven by technological change, and greater global competition. Some say the latter has reduced the ability of U.S. companies to bear the costs of retirement provision.
So President Barack Obama's initiatives to stimulate retirement saving, especially in small and medium-sized firms, through incentives and easing of some regulations should be welcomed by both sides of the aisle in Congress and by employers and employees.
As Jeffrey Zients, National Economic Council director, said while previewing the president's budget proposals: “We have to promote new retirement security opportunities and test new models.”
The president's proposals, which will be presented Feb. 9 as part of his fiscal 2017 budget, reportedly will include requiring every employer not currently offering a retirement savings program to set up an auto-enrollment individual retirement account for each worker. It will triple the startup credit that employers receive to offset the costs of setting up retirement plans.
It also will reportedly include steps to make it easier for employers to join multiple-employer plans by relaxing some of the requirements, and for employees to roll their retirement assets from one employer to a new employer.
Congress should seek more details of the president's proposals, and then debate those that require legislative changes. Some members of Congress might well object to placing another legal requirement on small employers by requiring them to establish the auto-enrollment IRAs, even though they will receive reimbursement for the costs.
Not everyone is going to agree with every proposal from the president, but the ideas should be debated in Congress with a “can do” rather than a “can't do” attitude.
The objective should be to do everything possible to increase the retirement savings of American workers, especially low-income workers.
Anything that will encourage more employers to help their employees to establish and fund retirement accounts should be considered.
The defined benefit plan is now being replaced in the private sector by variations of the defined contribution plan. Given the right regulations and the right incentives, more employers will step up and help their employees save for retirement. The president, working with Congress, can make that happen, but they have to work in the same direction.
Improving the non-governmental retirement system will be good for employees, improving their retirement years. It will be good for government because it will reduce the burden on government services for the elderly. It will be good for the economy because it will increase the national savings and, as people live longer, sustain demand for goods and services in the marketplace. n
This article originally appeared in the February 8, 2016 print issue as, "Don't kill private-sector ideas".