Democratic staff of Joint Economic Committee warns Americans’ retirement security is headed for disaster

Americans’ retirement future is shaky and Congress must immediately enact policies to secure it, according to a February 2018 report from the Democratic staff of the Joint Economic Committee. Challenges to planning and saving for retirement include inadequate savings, stagnant wages, and limited access to low-cost and high return accounts, according to the recently-released “Retirement Security in Peril.”

Fewer DB plans

One cause of the lack of retirement security, says the committee, is the shift from employer-provided defined benefit (DB) plans, such as traditional pension plans guaranteeing lifetime income during retirement, to defined contribution (DC) plans, such as 401(k) plans and individual retirement accounts (IRAs). For those close to retirement, a financial crisis or economic downturn can profoundly diminish savings in DC plans, so that workers assume investment risks that, under DB plans, would have been borne by their employers.
DB plans now also often have a down side for employees, says the committee, since local and state pension plans, representing a majority of DB plans, have recently experienced benefit cuts, partly in response to the decline of state and local pension fund assets following the market crash of 2008. In addition, the committee estimates that there are about a million participants in underfunded multiemployer DB plans.

Gig economy

Many Americans have no access to an employer-provided plan and the committee partly blames the gig economy for this, with its accompanying increase in remote location independent contractors. The number of independent contractor workers is up over 50% since 2005, according to the report, and independent contractors now make up approximately 16% of the American labor force. These so-called contingent workers are two-thirds less likely to have access to employer-provided retirement plans than their traditional employee counterparts. By comparison, however, well over 30% of even full-time private-sector workers lack access to either a DB or DC plan through their employers.
The report cites 2013 statistics from the Economic Policy Institute which show that retirement savings accounts for families at the bottom 50% of the earning scale have declined by 17% since 1998. A median family’s retirement account in 2013 had only $5,000.
Another contributing factor to the increasing lack of retirement security, says the committee, is the rising cost of education. Older Americans, many of whom are parents who financed their Millennial children’s education, have an estimated $247 billion in outstanding student loan debt. Many DC plans do not allow participants to withdraw savings penalty-free in order to supplement a child’s tuition, and participants with student loan debt are more likely to have low retirement account balances and to neglect important health needs. Those who default on their loans often have to surrender about 15% of their Social Security benefits.


The committee points to various policy proposals that it says could help address the retirement crisis. First is a proposal that Congress modernize Social Security by raising the current payroll tax cap of $128,400. This would ensure, the committee says, that a larger share of wealthier Americans’ earnings would go into the Social Security trust fund.
The committee is also recommending that workers be given better access to employer-based retirement plans, perhaps by establishing “startup” tax credits for small businesses that offer retirement plans for the first time, or allowing businesses to pool their DC plans.
Coming up with a long-term solution to ensure the stability of the Pension Benefit Guaranty Corporation (PBGC) is also critical, says the committee, and it pointed to both the Joint Select Committee to Solve the Multiemployer Pension Crisis and the Butch Lewis Act of 2017 as ways to strengthen multiemployer plans. Numerous underfunded plans and the decreasing number of DB plans are putting the PBGC financial future at risk, according to the report.

Source: Joint Economic Committee “Retirement Security in Peril,” February 2018.
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