Retirement and public policy don't always mesh well, said participants on several panels during the Global Future of Retirement conference.
Throughout several panels during the conference, which ended June 14, panelists debated the effect of monetary policy on retirement plan funding, lessons learned from pension reforms and the use of tax incentives to drive desired changes.
One panel of economic experts talked about the impact of monetary policy on retirement plan funding.
Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at The New School, saw danger in persistently low interest rates. “They cause us to take more risk with lower-quality investments,” Ms. Ghilarducci said. “Weak fiscal policy will doom efforts” to fund pension systems.
Noted Don Brash, a former governor of the Reserve Bank of New Zealand: “Monetary policy isn't the problem. ... If monetary policy is tightened in isolation, it would restrict growth.”
Mr. Brash says the bigger issue is “mindless bureaucracy and regulation.”
One example of potentially harmful regulation was the Pension Protection Act, said Charles E.F. Millard, managing director and head of pension relations at Citigroup, because it “had an inordinate focus” on full funding of pensions, which scared away some plan sponsors.
Political risk in the form of pension reform is “the No. 1 risk” that the Toronto-based C$8.6 billion ($6.7 billion) Colleges of Applied Arts and Technology Pension Plan faces, said Derek W. Dobson, CEO and plan manager.
At a panel discussing the global pursuit of retirement adequacy through investing, Mr. Dobson told conference attendees that pension funds are the hot topic for politicians, particularly in Canada.
Plan sponsors need to stay vigilant to ensure that politicians don't impose reforms that could actually hurt the pension plan, resulting in the closing or freezing of plans.
“Even well-intentioned politicians can do the wrong thing,” Mr. Dobson said. He noted roughly 25% of his time is now spent working with politicians and educating them on how the CAAT pension plan works and what it needs.
Politicians' interest in revisiting retirement savings tax incentives for employers and individuals, either as potential new sources of tax revenue should pre-tax employee contributions be reduced, or to ensure more equitable treatment is picking up in several countries, said experts from the U.S., U.K. and Australia.
Pauline Vamos, CEO of the Association of Superannuation Funds of Australia, said officials there are in the middle of a budget debate that could lower the amount of tax-advantaged contributions to the superannuation funds.
In the U.K., Joanne Segars, CEO of the Pensions and Lifetime Savings Association, said Chancellor of the Exchequer George Osborne has promised to “completely change the tax treatment” of pensions, particularly in an effort to get younger people to start saving.
In the U.S., the activity on the part of many states to create their own retirement savings programs for private-sector workers is prodding federal regulators to consider further steps.
“One of the main goals we have in our system is to expand coverage,” said J. Mark Iwry, Treasury deputy assistant secretary for retirement and health policy.
“The take-up rate for IRAs for people who are eligible to make tax-favored contributions, the people that do is less than 1 in 10. Because of all these decisions and initiatives, you have to get up off the couch and do it. We are trying to make it more automatic,” said Mr. Iwry, who noted that President Barack Obama has proposed an automatic IRA system that allows people to opt out. “We can keep it simple and get as many as 30 or 40 more million families into the system,” Mr. Iwry said.
Groom Law Group principal Michael Kreps, a former top pension aide for the Senate Health, Education, Labor and Pensions Committee, said: “Smart people have been thinking about retirement policy seriously in the private sector for 50-plus years. There is really nothing new under the sun in terms of ideas. People generally know what works and what doesn't for retirement systems.
“I come back to, what the heck stops us from doing the right thing?” Mr. Kreps said. “Three basic reasons: Retirement is rarely seen as a crisis that needs immediate attention. We know people are not saving enough, we know people are at risk, yet no one is dying today because of poor retirement policy. There is never this immediate need, this crisis. At the same time, where we do see crises, government tends to act more quickly. We have had real or perceived crises in (defined benefit) multiple times over the past 40 or 50 years, and the government has routinely reacted to those. But there was something to drive the politics.”
The other big consideration is that none of these policies happens in isolation, Mr. Kreps said.
“At least in the past seven or eight years, virtually all the major policies and changes that have come from Congress have been budget driven ... the need to raise money for unrelated projects. It just proves that oftentimes although the retirement system is very important, it just doesn't have the kind of weight that drives the politics forward,” Mr. Kreps said. n
Sophie Baker and Robert Steyer contributed to this story.