The Center for American Progress says it has come up a better way to help Americans prepare for retirement, a savings vehicle that combines the best features of traditional pensions and 401(k)s.

The center, a liberal think tank, said its hybrid plan, dubbed SAFE for Secure, Accessible, Flexible and Efficient, would address many of the problems often associated with the current retirement system. 

SAFE would help lower costs, risk and free employers of any fiduciary responsibility, the center said.

All sorts of new approaches to retirement savings have cropped up in recent years amid a growing realization that many American workers have saved too little to retire comfortably.

Perhaps most dramatically, the center said its actuarial analysis found that its SAFE Retirement Plan “significantly” outperforms both 401(k)s and IRAs in terms of cost and risk measures. 

It said a worker with a SAFE Plan would have to contribute only half as much of their paycheck as a worker saving in a typical 401(k) plan to have the same likelihood of maintaining their standard of living upon retirement.

It also claimed that a worker with a SAFE Plan is nearly 2.3 times as likely to maintain their standard of living in retirement as a worker with a typical 401(k) account making identical contributions.

The center said its system would offer regular payments to retirees by pooling investments, using professional management and eliminating the high fees charged to individual accounts.

It called for independent boards to oversee the plans, with all employees enrolled automatically. This, the center said, would alleviate the problem of only about half of all workers being enrolled in a retirement plan. Worker would keep their accounts when they shifted employers, eliminating the multiple accounts many end up owning.

Employers would be mandated to enroll workers in the plans and make payroll deductions. If they wanted to contribute to plans it would be a fixed percentage of an employee’s pay.

“We can build a better mousetrap here,” said David Madland, director of the American Worker Project at CAP. “You are seeing a lot of people starting to think along these lines, but we have not seen the hard numbers to support the idea.”

The idea of a hybrid pension plan seems to be gaining momentum. A similar plan is under consideration in California, where the state’s massive pension system has been plagued by shortfalls. In Congress, Sen. Tom Harkin, D-Iowa, has proposed a system that would use pretax dollars from employees to set up pooled accounts while easing the administrative burden on employers.

Some of the key features: 

  • Plans would be available to all workers regardless of whether their employer offered retirement benefits prior to the introduction of the plan.  
  • Investments would be professionally managed. SAFE Retirement Plan boards would be able to contract with professional investment-management providers.  
  • Benefits would be portable when workers change jobs and would be payable for life.  
  • Each worker would select a plan, and his or her employer would only need to facilitate enrollment and any required payroll deductions. If employers make contributions, employer costs would be fixed as a percentage of pay, and employers would not be faced with administrative or fiduciary obligations.  
  • Risks would be spread among workers and retirees rather than borne solely by employers, as they are in a traditional pension plan, or individual workers, as they are in a 401(k).  
  • While payout levels would not be guaranteed, the plan would be far less risky for workers and retirees than a 401(k), with a higher likelihood of achieving target benefit levels.   
  • Would not require employers to take on the risk of guaranteeing returns as they must with traditional pensions, nor would it impose any additional costs or risk on government.

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