A way to break the gridlock: Help Americans secure their retirement

Too often, it seems that the message from Washington is about what we cannot agree on, rather than what we can accomplish together. Despite a growing list of issues that appear headed for gridlock, there remains opportunity for action on important policies that can help the American people. Retirement security is one of those issues that crosses partisan boundaries.

Last week, when I testified before my former colleagues in the Senate on the importance of modernizing retirement policy in the United States, the message was clear from both sides of the aisle: the current retirement system does not work for millions of Americans, is not designed to meet the needs of a modern economy, and must be reformed.

{mosads}For example, a poll found that 40 percent of workers in my generation of Baby Boomers stayed with the same employer for more than 20 years. Few expect that to be the case for our children, who are much less likely to have such a long tenure.

The emerging “gig economy” has begun to fundamentally alter employment relationships, with many more people working as contractors for companies like Uber. These changes are redefining the way workers relate to their employers, and as a consequence, the way retirement benefits are (or are not) provided.

This evolution is not without precedent. In fact, the retirement system has been in flux for several decades. Fewer employers now offer defined benefit pensions that were once seen as the safest path to retirement security for many Americans. Between 1998 and 2015, the share of Fortune 500 companies offering those plans dropped by 90 percent. Defined contribution plans, such as 401(k)s, are now the key way for workers to supplement their Social Security benefits and prepare for an adequate retirement.

Unfortunately, this shift toward a more “do-it-yourself” system has left some workers behind. Others — particularly those at small businesses — never benefitted from either approach. The ongoing changes to the workforce will only exacerbate certain retirement security challenges.

First among these is a lack of access to and participation in workplace retirement savings plans. Even though contributing to a workplace plan is critical to an adequate retirement, more than half of private-sector workers either do not have access or do not participate in one.

Another challenge is savers raiding retirement accounts to pay for short-term needs. A recent study by the Federal Reserve found that around half of adults say they would be unable to come up with even $400 in an emergency without borrowing or selling possessions. Partly as a result, billions of dollars leak out of the system each year.

Third, many Americans are managing multiple retirement accounts. Frequently changing jobs can mean the accumulation of many different retirement accounts, or worse yet, the early cashing out of savings. One survey found that more than one-third of individuals have three or more retirement accounts.

Finally, Americans are living longer and are increasingly at risk of outliving their savings. Despite an increase in life expectancy, the average age of retirement has stagnated, putting pressure on households’ retirement savings. In addition, current regulations make it difficult to turn retirement savings accounts into reliable lifetime income.

There are bipartisan solutions. A commission at the Bipartisan Policy Center, which I co-chaired with former Social Security principal deputy commissioner James B. Lockhart III, reached agreement on a comprehensive set of recommendations to improve the retirement system as a whole. Several specific reforms are fairly non-controversial and could be accomplished with relative ease by policymakers.   

Congress should establish retirement security plans that make it easy for small businesses to enroll their employees into simple retirement savings plans with low costs. Employers should be allowed to automatically enroll employees in multiple savings accounts — specifically a retirement account and a short-term savings account — making individuals less likely to raid their retirement savings.

A retirement security clearinghouse should be established to would allow individuals to easily consolidate and manage multiple retirement accounts as they move from employer to employer. Defined contribution plan sponsors should be encouraged to integrate easy-to-use, sophisticated lifetime-income features that can help savers preserve their savings for increasingly longer lives spent in retirement.

Prospective Social Security beneficiaries should be better informed about the advantages to working longer and waiting to claim benefits when possible. Tax-deferred savings plans, which are being considered for substantial reductions in some tax reform proposals, should be preserved so that Americans have options to choose which type of account works best for them.

These are just a few of the many issues that members of Congress and the administration can unite on to address the retirement challenges facing Americans. As the past few months have shown, partisan divisions can easily stall or even prevent congressional action on important issues. Updating retirement policy for the modern American worker is an area where we can, and should, take action together.

Kent Conrad served as U.S. Senator from North Dakota from 1992 to 2013. During that time, he was chair of the U.S. Senate Budget Committee. He is now co-chair of the Bipartisan Policy Center’s Commission on Retirement Security and Personal Savings.

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