Three things can be done to ease the uncertain future of younger workers' retirements: work longer; lower retirement benefits; and increase savings, a panel of experts said Tuesday.
But the topic of working longer is "like the weather," said Joshua Gotbaum, guest scholar, economic studies at The Brookings Institution: "Everyone talks about it, but few do anything about it; and even fewer prepare for it."
Mr. Gotbaum shared the stage Tuesday at Pensions & Investments' Global Future of Retirement conference with Scott Evans, chief investment officer and deputy comptroller of the $170.6 billion New York City Retirement Systems, and David C. John, strategic policy adviser of the AARP Public Policy Institute, for a discussion on "Identifying pathways to ensuring intergenerational fairness."
The idea of working longer is a major challenge for employers, educational institutions and government, Mr. Gotbaum said, offering three responses.
First, he said, is to change the retirement age, acknowledging it is both "incredibly politically controversial" as well as difficult to change people's expectations of what the norm is for retirement.
Second, he said, is change employment rights — make it so people can work longer with their current employers and have employers be open to a negotiated, phased retirement.
Finally, he said, the country needs a guaranteed base income.
New York City's Mr. Evans said it is "getting less and less appealing to be a sponsor; it's gotten expensive to be a sponsor."
Among public plans, the first instinct given today's challenges is to say "we can do more: take on more risk to earn more return," Mr. Evans said.
The second is to get the sponsor to contribute more, by reducing the discount rate or change the actuarial assumptions.
The third option is to get the participant to contribute more, or change the benefit formula, but he cautioned "when you start changing the (benefit) promise, you get into trouble."
When none of the above works, Mr. Evans said, the fourth option for sponsors is "to punt:" Freeze the plan, or start a hybrid plan. But that leaves the beneficiary poorly positioned for retirement due to a lack of expertise and a lack of purchasing power, and creates "an unambiguously inferior" outcome, Mr. Evans said.
Mr. John said that with people living longer, an uncertain future and the promised payout of a defined benefit plan no longer a widespread benefit, what's left "is saving."
Simpler said than done because certain countries such as Australia and the U.K. have "solved part of the problem; no one has solved it all," he said.
Mr. John said two things are necessary to boost savings: There must be a workplace opportunity to save, and there must be automatic enrollment.
But, he continued, auto enrollment isn't enough, noting "you have to have a seamless transition" for the assets when people change jobs, and there has to be some mechanism to allow people to create a retirement income stream.
Mr. John reminded the audience that in an industry focused on statistics, "we lose sight … (that) we are dealing with the futures of real human beings. We have the ability within this room to move forward to a solution."
This should be "the most exciting time" to be in the investment industry, he continued, noting everything about the past is changing.
Mr. John exhorted the audience to act, saying: "We need to do something other than sit and listen to each other. We need to do something."