Putnam CEO Reynolds Calls for a 'New Solvency'

Comprehensive retirement reform, he continued, is a cornerstone of the New Solvency, as retirement savings accounts make up the majority of all savings in the U.S., and “play a vital role in funding our capital markets.” A host of other changes in are needed as well, Reynolds said, in economic policies and “in our public mindset to provide fruitful outlets for higher savings, to make economic growth and job creation America’s top priorities, and to recognize that private employers and entrepreneurs, especially, are the primary engines that make our economy grow.”

Matching Social Security’s revenues to promised outflows for the next 70 plus years, Reynolds said, “is probably the easiest single element of America’s much larger solvency challenge,” namely medical entitlements. Social Security reform, he said, needs to meet three key criteria: First, do not alter the benefits of any current retirees or those within 10 years of full retirement age. Second, do not raise the basic payroll tax rate. “That would discourage job creation just when we need it most,” he said. Third, sustain intact all future retirement benefits for low-income Americans. All other paths to solvency, Reynolds said, “should be open to discussion, including retirement ages and benefits paid to middle class and wealthy retirees—whatever it takes.”

Erskine Bowles and Alan Simpson, co-chairs of President Obama’s Deficit Reduction Commission, essentially met all three of the criteria in their Nov. 11 draft proposal, Reynolds said. While Bowles and Simpson’s plan would require some sacrifice by middle-class and wealthy recipients, Reynolds said, “that would mostly come in the form of smaller increases in some future benefits, not absolute cuts. And the co-chairs’ plan actually did provide for increases in benefits for low-income retirees.”

Bowles and Simpson did call for raising the full Social Security retirement age to 68 by 2050, “which gives today’s twenty-somethings roughly four decades to plan ahead,” Reynolds said, “but they also suggested allowing workers whose jobs require tough physical work to keep on retiring at age 62.” In other words, he continued, “their plan was slightly more progressive, slightly more redistributive, and vastly more certain than the current system.”

Reynolds’ call for a New Solvency is reflected in the results of a survey of 1,000 Americans conducted in the past week by Putnam. Among the findings of the survey:

• Americans were nearly unanimous (95%) in saying they are concerned about the federal budget deficit, with three-quarters (72%) saying they are “very” or “extremely” concerned about the deficit.
• By a three-to-one margin, Americans prefer to balance the budget by cutting spending instead of raising taxes; nearly half (45%) said that cutting defense spending was the single best way to close the federal budget deficit, including a third (31%) of self-identified Republicans. An additional 20% preferred reducing domestic spending and 11% reducing spending for Social Security, Medicare and other entitlements.
• Balancing the federal budget is Americans’ top choice among a list of national spending priorities, chosen by one-third (36%), ahead of healthcare reform, Social Security solvency and fighting terrorism.
• Three-quarters of Americans (72%) said Social Security is a key source of retirement income for many millions of working people and must be fixed for the long term.
• Two-thirds of Americans (70%) think that a tax incentive to hire American workers would help to stimulate job growth. Nearly half of those surveyed (49%) support a 10% reduction in corporate income taxes for companies that increase their U.S. workforce by 1%.