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A solution to the retirement crisis

By Barbara Whelehan ·
Friday, August 3, 2012
Posted: 5 pm ET

There's no question that America is suffering from a retirement crisis. Six out of 10 Americans have less than $25,000 saved up, according to the 2012 Retirement Confidence Survey from the Employee Benefit Research Institute. That doesn't include the value of their homes or pension plans, but most people don't have pension plans these days, plus many are losing their homes.

Lately some bigwigs in retirement policy have offered some creative solutions to the retirement crisis.

Teresa Ghilarducci, a professor of economics at the New School for Social Research who has testified before Congress on retirement matters, lambasted our failing retirement system in a recent New York Times op-ed titled, "Our ridiculous approach to retirement." Her solution would be a secondary Social Security-like mandate. In her words:

My plan calls for a way out that would create guaranteed retirement accounts on top of Social Security. These accounts would be required, professionally managed, come with a guaranteed rate of return and pay out annuities.

That plan would require a higher payroll tax than what we already contribute to Social Security. As I recently relayed in a tweet, I prefer to invest in a 401(k) plan. That way I'm in control of at least part of my retirement planning.

More recently the government has proposed a new solution. Sen. Tom Harkin, D-Iowa, introduced a plan based on a series of hearings he held on the matter of retirement security as chairman of the U.S. Senate Committee on Health, Education, Labor & Pensions.

USA Retirement Funds

Harkin proposes a defined benefit solution -- something akin to the old pension plan, but with some modifications -- a hybrid pension of sorts. Companies would not have to bear the risks inherent in a pension plan. And those that already have 401(k) plans in place wouldn't have to adopt it.

Harkin's plan "would rebuild the private pension system by providing universal access to Universal, Secure and Adaptable ('USA') Retirement Funds," according to his report, The Retirement Crisis and a Plan to Solve It.

The highlights of the retirement system are as follows:

  • The new system would solve the longevity risk problem by providing a predictable stream of retirement income for life, as well as survivor benefits.
  • Responsibility for the system would be shared by individuals, employers and government.
  • The so-called USA Retirement Funds would be privately run and regulated plans, with trustee members composed of employer, employee and retiree representatives who would assume fiduciary duties.
  • The benefits would be portable so that participants could move from one USA Retirement Fund to another as they make job changes.
  • Employers could choose a particular USA Retirement Fund or use the default fund used in the industry, region or via collective bargaining.
  • Low-wage earners would be eligible to get a refundable retirement savings credit.
  • These USA funds would be cheap due to competition and economies of scale.
  • They would have to be completely transparent about "investment performance, funding levels and the projected level of retirement benefits based on contribution levels."
  • Employers who do not already offer a retirement plan would have to "automatically enroll employees, ensure that employee contributions are processed, and make modest contributions." Companies would receive a credit to offset the minimal administrative costs involved.

The proposal is long on ideals but short on particulars. What would be the default contribution rate? How much would employers have to contribute? Who would review the proposals from the mutual fund companies or institutional money managers? How many USA Retirement Funds would there be and how would they be selected?

An interesting factoid: The retirement benefit would be based on contributions and investment performance, but a protracted bear market may result in a smaller check for retirees and employees. But if the investment performance is good, they may get a bigger check. This raises another question: Does this mean checks may get smaller midway through retirement?

Employers wouldn't have to adopt this retirement system if they already have one in place, but they could do so if they wanted to. And employees would not have to participate: They could opt out.

Harkin's plan is still in the conceptual stages, but at least retirement industry lobbyists shouldn't oppose it since it doesn't call for change in the current 401(k) system. In fact, it presents new business opportunities for the industry. Whether it gets any traction in Congress is altogether another matter.

I like this plan because it lets individuals decide whether they'd like to participate. On the other hand, since participants would be automatically enrolled in the plan, widespread participation would be likely. It could help solve the retirement crisis.

What do you think?


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Barbara Whelehan
August 16, 2012 at 12:28 pm

Hi Louise,

I'm surprised you weren't able to find this on our site. Bankrate regularly runs columns from Dr. Don Taylor about Social Security, and we also have a story on our site on the subject of collecting benefits based on an ex's record.

The rules are complicated. But since you had been married to your ex for at least 10 years, you can collect up to 50 percent of the benefits he's entitled to, even if he hasn't started taking benefits. Doing so will not at all affect how much he gets from Social Security. Don't delay -- apply today! But be persistent because you may get the runaround. See this page for more details:

Thanks for writing.

Louise Stevens
August 16, 2012 at 10:52 am

I have searched for a long time on the different sites and cannot find any reference to these two question.


I was married to someone for 24 years, divorced from him 8 yrs, am 66 yrs of age and retired in 2009, am not disabled, blind and do not have any income other than my own SS each month which is
painfully small!


1. Can I tap into his social security since he is not on it yet and if so....

2. Will this take money away from him when he does retire?

None of the sites, including the SS site, tells you what happens if he is REMARRIED and the impact this will make on his SS payments when he retires!

Thanks so much!
Louise Stevens

August 08, 2012 at 12:43 am

I have a 401K. I changed to a self directed 401K this year. It is the best thing I ever did for retirement. Before I was invested in mutual funds. That was a BIG mistake. The market is rigged for wall street, stock brokers, criminal banks, etc. Get a self directed plan and then use your brain. My 401K will make 12% MINIMUM this year. Some of my investments are making OVER 15%. That would never be the case with mutual funds. GET OUT OF THE MARKET. Get a self directed plan. If anyone wants to contact me my email is

Barbara Whelehan
August 05, 2012 at 9:25 am

Hi April -- I imagine the plan, if it ever materializes, would be open to self-employed people, though the report didn't mention anything about that. However, you have a lot of options right now. Read Bankrate's story about retirement plans for small businesses and start tucking away 10 percent to 15 percent of your earnings in a tax-advantaged plan right away. You will gain a sense of empowerment and shed those feelings of fear as you see your savings build up after a time. Best wishes to you, and thanks for writing.

Christie Hartshorn
August 04, 2012 at 11:23 pm

When it comes to retirement, what retiree investors should think about more is on how they could preserve their money and at the same time make money on top of it. Generally, this is what annuities can offer, learn more about this topic at Feel free to connect with me:

April Walden
August 04, 2012 at 8:09 pm

What about self employed people. Would we be considered in this plan? If not, what are your recommendations? I am 37 and could not be more scared about how to ever start preparing for retirement. I sometimes can't even enjoy life because I'm so worried about keeping health insurance, let alone retirement. The system has to change.