A congressional leader sees a key role for investment advisers in his vision for reform of the retirement system.
Sen. Tom Harkin, D-Iowa, chairman of the Senate Health Education Labor and Pensions Committee, would like to create a new private retirement system that is based on professionally managed pools of retirement funds. He doubts that Americans on their own can cobble together nest eggs big enough to finance their post-work needs.
“Forcing people to manage their own retirement funds isn't working,” Mr. Harkin said of the growing use of 401(k) plans by employers.
“Most people don't have the background, the interest or the time,” he said. “Instead, retirement dollars need to be pooled to take advantage of economies of scale and managed by professionals who carefully select and monitor every investment in a diversified portfolio.”
Mr. Harkin spoke last Tuesday at a conference in Washington sponsored by the National Institute on Retirement Security. After his address, the group released a survey showing that 84% of Americans are concerned that they won't be able to save enough for retirement and that most people think that they will have only a modest lifestyle after they stop working.
RETIREMENT SECURITY
Last fall, Mr. Harkin launched a series of hearings focused on retirement security, which are continuing this year. He wants to rethink how retirement is financed.
“The root of the problem is that we've never had a coherent plan for a universal private retirement system,” Mr. Harkin said. “We need to take a fresh look at the retirement system and see what we can do to make it work for everyone.”
A new mechanism should be universal and automatic; provide a check for a certain amount every month for as long as a retiree lives; involve shared responsibility between employers, the government and individuals; and include a central role for professional money managers, according to Mr. Harkin.
Advisers involved in the system would have a fiduciary responsibility and would have to operate transparently while investing retirement money in both Treasury bonds and private securities, he said.
“I don't know how it would be structured,” Mr. Harkin said after his speech.
“I would be the first to admit I don't have a blueprint,” he said. “That's why I'm holding these hearings.”
In a committee meeting last fall, Mr. Harkin raised concerns about conflicts of interest for advisers to defined-contribution plans sponsored by employers. He said that they have an incentive to push employees into higher-fee products such as individual retirement account rollovers, a point also made in a recent Government Accountability Office study.
“What you need to do is wring out of the system any sense that an individual or investment firm can make more profit by rolling these things over at the expense of people who put the money in,” Mr. Harkin said.
THE NUMBERS
In 2009, the median balance in 401(k) plans was $59,381, according to a study by the Employee Benefits Research Institute. People are realizing that they may fall well short of the savings they need for retirement, according to the NIRS survey.
“Generally, Americans consider a secure retirement simply surviving or living comfortably (34%), paying their bills (17%), maintaining their pre-retirement lifestyle (11%), and paying health care and health insurance costs (8%),” according to the survey, which was based on nationwide telephone interviews of 800 Americans 25 or older.
The survey also showed that 80% think that policymakers in Washington fail to understand the difficulties of saving enough money for retirement.
Adding to the dour sentiment is the fact that the financial crisis of 2008 lingers in the minds of many Americans and has shaken their confidence in the markets, according to Brian Perlman, a partner at Mathew Greenwald & Associates, which conducted the poll.
“People have redefined what retirement is, and they have lowered their expectations,” he said.
E-mail Mark Schoeff Jr. at [email protected].
