An intractable piece to the American pension puzzle is how to get working-class citizens — especially those without an employer-sponsored plan — to save for retirement.

In 2005, the federal government found that only 43.1 million private sector workers participated in a retirement plan, leaving about 52.7 million employees without a plan or not participating in one. In addition, some employees, such those working part-time, are not eligible to join in their companies' retirement plans.

Labor economists and policy wonks contend that the vast majority of these individuals are low- and moderate-wage earners.

They further explain while the Pension Protection Act of 2006 aids some Americans in accumulating retirement income, there remains a vast majority of Americans without any retirement saving vehicles to supplement their Social Security income, which currently averages only $12,000 per year.

To shed light on the problem, a cohort of retirement analysts have designed a national public policy initiative called "Conversation on Coverage," which outlines ways to help low- and moderate-income workers save for retirement.

Meeting of the minds

Karen Friedman, director of Conversation on Coverage, says the project pulled together many people with different views and ideologies and allowed them to air their differences and find ways to reach common ground.

"Everyone was committed to the same goal, which is getting more people covered by retirement plans, so that they can have more money in retirement," she adds.
Private retirement plan coverage has been stuck at about the same level for two decades.

A project six years in the making, Conversation on Coverage solicited the opinions and views of more than 45 retirement experts from think tanks, private and public sector organizations and academia.

Some key sponsors of the initiative include Fidelity Investments, the American Benefits Council, Prudential Financial, the U.S. Chamber of Commerce, the Vanguard Group, the International Association of Machinists and Aerospace Workers and the AARP, just to name a few.

New retirement nomenclature

One proposal trumpeted by Conversation on Coverage entails a new hybrid retirement plan called the Guaranteed Account Plan (GAP), which combines features of a defined benefit plan with a 401(k) plan.

Under GAP, "the employer credits a contribution to an individual's account based on a percentage of that employee's pay and then guarantees the return on the contributions," the group's proposal explains.

The employer assumes the risk of investing the money to obtain the specified promised rate of return.

The architects behind GAP say it's a lifetime annuity that starts at retirement and has a guaranteed spousal survivor annuity.

What's more, plan sponsors would hire professional asset managers to invest plan assets.

Another plan proposal from Conversation on Coverage is called the Plain Old Pension Plan (POPP). It is a simplified, traditional defined benefit retirement plan designed to be user-friendly to both employers and employees.

POPP, which would allow part-time employees to be eligible, also would permit employers to offer bonus benefits in the good years and cut back to the basic benefit offering in the leaner years.

With the plan, employer contributions are based on published government tables that will make it easier for employers to know how much money they will need to contribute and help reduce some of the funding volatility, the proposal states.

The federal Pension Benefit Guaranty Corp. would insure both POPP and GAP, according to the recommendations.

Melissa Kahn, vice president of government and industry relations at MetLife, co-chaired the committee that designed GAP and POPP.

"The two new employer-funded plans were created, in part, to address the obstacles employers have with sponsoring defined benefit plans, such as concerns about volatile and unpredictable future funding obligations," she explains.

The committee conducted focus groups with some plan sponsors to see how viable these plans would be in the market place.
This has led to the development of a survey for GAP and POPP that will go out to a wider audience.

Overall, the group is setting up taskforces for both plans, hoping to move the proposals forward and get more buy-ins, Kahn explains.

Encouraging workers and small firms

Not ignoring the fact that low- and moderate-income workers share some responsibility in saving for retirement, the initiative also calls for a Retirement Investment Account (RIA) plan.

It would function as a government-sponsored clearinghouse that would administer portable lifetime individual accounts.

"The proposed structure is designed to provide an easy and efficient way for workers who are not covered by a plan to save for retirement and enable them to keep their account whenever they change jobs and lack employer plan coverage," the proposal outlines.

The nationwide clearinghouse would receive funds from workers through payroll deductions facilitated by employers in amounts designated by the employees.
Plan eligibility would include all U.S. employees who do not have a retirement plan or who are not eligible to contribute to an employer-sponsored plan.

Furthermore, the program would provide tax incentives to encourage low-and moderate-income wage earners to routinely add to the plan.

Michael Calabrese, vice president and director of retirement security program at the Washington, D.C.-based think tank New American Foundation, co-chaired the group who developed RIA.

He believes the RIA-type plans would be ideal "to pilot ... at a state level."

Meanwhile, the organization carved out recommendations for the small-business community, given that it's the fastest growing employer sector and offers the least amount of pension coverage to its workers, many of whom fall into the low- to middle-income bracket.

"It is extremely important to figure out a way to get small businesses to offer more pension plans," says Maria Freesa, director of government relations and policy at the Washington, D.C.-based advocacy group National Committee to Preserve Social Security and Medicare. She co-chaired the committee that focused on the small business sector.

"When you poll small-business owners, you will consistently find that the main impediments to offering coverage are cost, complexity and fear of fiduciary liabilities. Our proposals try to address those issues," she remarks.

The group designed the Model T plan, a multiemployer payroll deduction plan run by financial service institutions.

"Once an employer signs up with a financial institution, both the employer and employees will be able to contribute to the plan," the proposal states.

"The employer is assisted in its fiduciary responsibilities by the simplicity of the plan and by an annual performance report that will be provided by financial institutions."
Kevin F. Crain, director of integrated benefits at Merrill Lynch Retirement Group, says, "The focus on low-wage earners is that their greatest reliance would have been on Social Security, and I think there is some consternation around how much of Social Security will be there."

Crain, who is not affiliated with the project, believes its goals stem from the fact that people should have far more retirement saving programs than solely relying on Social Security or traditional pension plans.

Olena Berg Lacy, who sits on Conversation of Coverage's steering committee, says the public "should not look at these proposals as being chiseled in stone or as a final best idea product. They should be viewed as a living, breathing kind of thing that can be shaped, altered and perfected in the public policy process."

A little more 'Conversation'
Highlights of Conversation of Coverage's new policy proposals

Guaranteed Account Plan (GAP): Something of a defined benefit plan- 401(k) plan combination. The plan would have shorter vesting than most traditional pension plans to assure that more short-term workers earn a retirement benefits.

Plain Old Pension Plan (POPP): A simplified version of the traditional pension. An employer could convert POPP to a traditional defined benefit plan at any time.

Retirement Investment Account (RIA): Portable lifetime savings vehicles allowing workers to contribute as they move from one workplace to another and/or find themselves uncovered by an employer-sponsored plan. Hardships withdrawals allowed, but no loans.

Model T: The program would cover all W-2 employees of a participating employer. No hardship withdrawals, but financial institutions could decide whether to offer loans. The plan would use automatic enrollment to expand coverage.

Source: www.conversationoncoverage.org