Liberal think tank thinks it has a better retirement plan

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.

See also:

• Seniors optimistic about future
• Plan for today, tomorrow and the future
• Demographic nightmare: boomer retirement disaster looms