More than 55 years have passed since President John F. Kennedy established the first commission to examine the nation's private pension system, its strengths and weaknesses, and propose changes needed to improve it. That commission's work ultimately led to the passage of ERISA in 1974, and to the major changes that clearly were needed.
Almost 40 years have passed since the most recent retirement commission was established by President Jimmy Carter in 1979. But nothing came of that effort. Its key recommendation, for a mandatory universal private pension system, commonly referred to as MUPPS, was ignored.
Now two senators, Sens. Todd Young, R-Ind., and Cory Booker, D-N.J., have introduced legislation calling for the establishment of a new retirement commission to once again examine what changes are needed in the private pension system to improve it. It is time to re-examine the U.S. retirement system, but all parts — Social Security, the private pension system, including the Pension Benefit Guaranty Corp., and the public employee system.
Any retirement commission must examine how these parts fit together. It must examine the weaknesses of all of them and propose solutions to the problems of each. It must ensure those solutions do not make the U.S. economy less competitive.
While ERISA undoubtedly improved the financial health of private pensions for participants by setting participation, vesting, funding and fiduciary standards, it left millions of workers uncovered. Since the passage of ERISA, some subsequent amendments have dissuaded some employers from establishing plans and have driven the number of defined benefit plans down by increasing the burdens on plan sponsors.
While defined contribution plans have replaced defined benefit plans as the preferred retirement plan in the private sector and have increased private-sector retirement plan coverage, that coverage generally is not as generous as what a defined benefit plan would have provided.
However, the greatest weakness of the U.S. private retirement system is not the lower benefits offered by DC plans but the number of workers who have no access to a retirement plan of any kind.
The Carter retirement commission's proposal for a mandatory private pension system was quickly shot down by corporate opposition and the Reagan administration. But given that many states are moving ahead with their own plans to cover private-sector workers who have no plans, and some are mandatory, now might be the time to reconsider the Carter commission's proposal.
Companies might support a federal plan rather than deal with 50 different state plans. Australia has had a mandatory plan since 1992, with contributions rising from 3% of pay initially to 9.5% now, that has served the country well.
The commission ought also examine the nation's public employee plans, many of which are deeply underfunded to the point where the required contributions are crowding out other spending, e.g. on education and infrastructure. It ought to take a good look at whether a public plan equivalent of ERISA would be constitutional.
State and local officials resisted the idea of a PERISA when ERISA was passed, arguing it would be unconstitutional, but that should be tested. If public funds had been held to ERISA's funding standards they would be in far better financial shape.
And Social Security should also be on the agenda. It is a huge part of the retirement income for many workers, and for too long Congress has ignored the fact that the trust fund will be drained by no later than 2034, at which point benefits for new retirees will have to be cut.
A strong recommendation by a bipartisan, or non-partisan, retirement commission, examining and proposing changes to all parts of the U.S. retirement system, might give Congress the cover to address the Social Security system and give it a solid financial foundation for the foreseeable future.