Re-Envisioning Retirement Security: Other Proposals
The following proposals were submitted to the Retirement USA Steering Committee for review, but were not among those selected for presentation at the Re-Envisioning Retirement Security Conference on October 21, 2009.
Universal Voluntary Accounts- Dean Baker
Universal Voluntary Accounts (UVAs) would be state sponsored and administered, with the investment privately managed. Under this plan every worker in a state would have access to a defined contribution plan through his or her job. The proposal would keep costs low by offering a small number of investment options similar to the current Thrift Savings Plan, and limiting opportunities for participants to switch investment allocations between the options. The UVAs would be fully portable within a state. Employees would make contributions directly through payroll deductions and employers could choose to contribute. UVAs would allow for withdrawals similar to 401(k)-type accounts, although loans would raise the costs of the UVA and such costs would be passed on to the borrowing individual rather than the entire system. At retirement the assets would be converted into an annuity although workers could opt to take benefits under another payment structure.
Bring Executives Back into Qualified Pension Plans- Frank Cummings
The proposal is a series of legislative changes that would induce and/or force senior corporate officers and executives to rely on qualified plans for retirement security along with the rest of the workforce. The concept is that by forcing executives to rely on these plans, they are in turn forced to develop better plans for all workers. The proposal would prohibit all non-qualified deferred compensation. In turn changes to qualified plan structures would include increases in the PBGC guarantee and in the maximum allowable benefit, indexing both limits. Non-discrimination rules would be amended so that qualifying DC plans would be required to provide a benefit to the lowest earners and DB plans would be required (after a phase-in) to reach full funding status.
Pension Paycheck Campaign/ Reverse Match Account- Paul R. Edwards
The Pension Paycheck Campaign proposal would establish a reverse match system on top of Social Security. All employees and employers would be required to contribute 1.5 percent of pay into an individual account administered by a regional board modeled after the Federal Thrift Board. Employers at their choosing may contribute above the minimum required contribution on behalf of their employees. Employees in turn would be able to contribute a reverse match which could be dollar for dollar or a ratio of two dollars for every dollar the employer contributes. The accounts would prohibit pre-retirement withdrawals and at retirement participants could take their benefits in an annuity or a lump sum.
10-Percent-of-Earnings Universal Pension System (UPS)- Jonathan Barry Forman
The proposal would implement individual accounts for all private and public workers and mandate that workers contribute 10 percent of their salary (up to the Social security wage base). Contributions to the accounts would be pre-tax, assets would grow tax free and the accounts would be annuitized at retirement with no allowable pre-retirement distributions. The plan could subsidize low-income workers through a refundable version of the saver’s tax credit. Assuming a three percent real rate of return on the accounts, an average-earning man attaining age 65 in 2065 would replace 47.9 percent of his pre-retirement income and a similarly situated woman would replace 44.4 percent of her pre-retirement income. However the plan could equalize the annuity benefits by mandating unisex mortality tables or subsidizing annuities paid to women.
Uncle SAM Retirement Plan – (Safe and Adequate Model Retirement Plan)- Norman Stein
The Uncle SAM Retirement Plan would be a simplified career average defined benefit plan sponsored by nonprofit regional entities and jointly administered by employers, employees and retiree representatives. The Uncle SAM plan is based on the POPP (Plain old Pension Plan) developed by the Conversation on Coverage. Employers and employees would equally share in contributions with government subsidies for employees making below the national average. The contributions would be based on conservative actuarial assumptions and constrained by a corridor, with a six percent floor and a 12 percent ceiling. Employees and employers would have the option of purchasing additional benefits up to twice the benefit otherwise earned in the year. Plans could increase benefits based on the fund’s performance. The basic benefit would be one percent of career average pay with pay capped at 2.5 times the average national earnings. A clearing house would keep track of individuals who earn benefits with more than one administering body and the last plan in which an employee participates will assume responsibility for paying out the entire benefit with other plans transferring the participant’s benefit over to the payer plan. Benefits would be payable at retirement in the form of an annuity with survivor benefits for married participants.
Note: The Conversation on Coverage (CoC) was a common ground initiative convened by the Pension Rights Center. The CoC brought together a diverse group of experts with a wide range of views to find common ground solutions to the pension coverage problem. The POPP is described in detail in the final report of the CoC, Covering the Uncovered.
New Defined Benefit Plan System - Jeffrey R. Kamenir
The New DB Plan System would modify the existing private sector legislative and accounting rules governing defined benefit plans in order to simplify the current DB model and create more predictable funding and accounting requirements. As a result, companies may be more inclined to sponsor a defined benefit plan. Contributions into the plan would be invested in low risk "stable value" type funds to preserve the principal. Accrued unfunded liabilities would be based on market assets and required to be fully funded each year. All benefits would be paid in the form of life annuities. Benefits would not be insured by the PBGC and therefore, plans would not be required to pay PBGC premiums. Existing plan sponsors could choose to maintain their current plan or convert into the new system.
Universal 401(k)- Tim King, Washington Hancock Community Agency
The proposal would establish a universal 401(k) encouraging or requiring all workers to participate through contributions that employers would match up to a certain percentage. Participants would be able to take their accumulated vested assets and purchase incremental annuities that would gradually accumulate into a large annuity at retirement. Participants would be provided with periodic reports on the level of income expected at the time of retirement with additional information on the future impact of increased levels of participation. The annuity would either be administered or guaranteed by state or federal governments with oversight panels comprised of employers and employees.
DC and IRA modifications- Bruce Miller, B&L Financial
The proposal would modify the current defined contribution and IRA rules to increase participation and savings in tax favored accounts. All defined contribution plans would be required to automatically enroll employees immediately upon employment with a three percent salary deferral with escalating employee deferrals and employer matches. Plans would be prohibited from offering loans or other kinds of in-service withdrawals. Plans would also be required to offer a default investment option as well as other government regulated target date mutual funds similar to those currently offered in the Thrift Savings Plan. IRA maximum contributions would be changed to 15 percent of adjusted gross income and required minimum distributions at age 70.5 would be eliminated.
Cost of Living Adjustment (COLA) - James Russell, Committee for Equity in Retirement
In concert with ensuring lifetime payouts, Retirement USA should embrace a principle of incorporating mandatory Cost of Living Adjustments due to the loss in value of assets over time.
Personal Pension Plan (P3)- Jeffrey Seymour, The (k)larity Group
The P3 would cover all workers and employers (public, private, part-time, contract, self-employer). Employers and employees would share in the contributions with employees paying between 60 to 75 percent of the total contributions. A model would prescribe required contributions and investment strategy based on the participant’s age and income to provide for adequate replacement of pre-retirement income. The plan would prohibit pre-retirement withdrawals and provide a combination payout of annuitized life income and minimum/ maximum distributions based on mortality tables. The plans would be sponsored through multiple employer plans established within each state and run by private or non-profit entities; however large employers could maintain their own plans adhering to expense and investment guidelines.
Retirement Security and Longevity Risk- Mark Shemtob, Abar Pension Services Inc.
The Retirement Security and Longevity Risk proposal would provide near universal longevity insurance protection in a cost efficient manner. The program would be mandatory to all workers and would provide insurance to protect against the risk individuals face in outliving their retirement savings by providing lifetime benefits beginning at the “extended longevity age”. Employers, employees and the government would share in funding the program which would be administered privately with government oversight.
Growth IRAs- William R. Sherman
The Growth IRA would provide a supplement to Social Security in the form of an IRA provided to every U.S. newborn and funded by estate tax revenue giving each participant at birth an initial contribution of approximately $5,000. The Social Security Administration would administer the IRAs, and upon retirement the account balances would be annuitized and paid out to participants on a periodic basis. Benefits remaining upon the death of the participant would be payable to a beneficiary
Universal Retirement System/ Social Security Add On- Ken Steiner
The proposal would establish a new universal retirement system as an add-on to Social Security. All employers would be required to participate regardless of whether they provide an existing plan. Employees would be required to contribute at least three percent of pre-tax pay to a pooled fund invested in government bonds or private securities with professional management. Employers would be encouraged to make matching contributions and would be charged with transferring employee contributions to the program. In addition to administering the plan, the Federal government could provide matching contributions or other discretionary contributions. Pre-retirement distributions would be prohibited, and benefits would be paid out in the form of a life annuity indexed to the cost of living and guaranteed by the Federal government.
Life-Expectancy Indexed Defined Benefit Plan- John Turner, Pension Policy Center
The life-expectancy indexed DB plan would be a component of a larger reform that together would provide universal benefits. For each successive retirement cohort, the generosity of the benefit formula would be slightly reduced to take into account improvements in life expectancy up to the point of retirement.The plan would provide more stable funding than the current DB system through minimum required contributions jointly made by employers and employees. In addition there would be government subsidies for lower-wage workers. Benefits would be price indexed up to the point of retirement thereby eliminating the portability problems of traditional DB plans. The plan would prohibit pre-retirement distributions with the exception of permanent disability. Benefits would be paid in the form of an annuity with survivor benefits for married participants
Universal 401(k)- Jane White, Retirement Solutions
Retirement Solutions proposes a Universal 401(k) managed by a clearinghouse and open to all workers of employers not already offering a retirement plan. Employers with 10 or more employees must offer a 401(k) and contribute 9 percent of pay- the contribution amount may be phased in over a 10 year period. Employees of employers with less than 10 employees will be enrolled in a “universal 401(k)”. The government will provide a dollar-for-dollar match on the first $2000 of contributions to those whose families earning less than $40,000 annually. Workers in families earning above $40,000 annually will receive a 50 cents on the dollar match up to the first $4,000 in employee contributions. The plan also proposes eliminating or significantly increasing the maximum limit on tax-deductible contributions and income restrictions for participants in employer sponsored retirement savings plans and IRAs, especially for participants over age 50 making catch-up contributions. The proposal would prohibit pre-retirement withdrawals and the assets would be converted into a lifetime payments upon retirement.