Can those aged 45 to 64 be saved from misery in retirement? How?

Ghilarducci’s plan would have lower investment management costs and marketing costs than current 401(k)s, but “their administrative costs would likely be similar.” Average net returns under a State GRA are estimated to be 7.28 percent — well above the average return for defined contribution plans (6.31 percent) and close to the average return for traditional defined benefit pensions (7.43 percent).

An earlier iteration of the plan, from 2007, was estimated to provide a retiree with pre-retirement income of $20,000 with a $5,183 guaranteed annuity in retirement (assuming the retiree worked 40 years and retired at age 65). This would improve that worker’s “replacement rate” by 26 percent, for a total rate of 89 percent when combined with Social Security payments. (Note: that figure would likely be less for a worker just entering the plan at age 45 to 55, though still considerably higher than the replacement rate for Social Security alone).

According to Ghilarducci, if either her proposal or Harkin’s were made law tomorrow, anybody in their 40s or younger who entered the program “would have adequate retirement; it would solve this problem.”

Automatic enrollment and soft mandate

Though a major retirement savings overhaul would have the most dramatic impact, there are also smaller reform possibilities that would alter the current system of 401(k)s and IRAs to allow workers to save more money.

The first idea is a policy of “automatic enrollment.” This would take the current 401(k) plans and require employers who offer them to automatically enroll employees in such plans. Dean Baker said this plan could help enroll more people in retirement plans: “As it is now, not always, but generally, when you’re an employer that offers a 401(k) you [the employee] have to opt into it. You have to fill out the forms and say you want to be in it, and people for a variety of reasons…they don’t end up doing it, even though they may actually want it. If you flip that over and you make the default that you’re going to be in the program, and you have, say, 3 percent of your wages taken out, you’re likely to get a much, much higher enrollment rate and you’re not forcing people into it” because employees can opt out.

Monique Morrissey suggested what she called a “soft mandate”: the federal government could require employers who receive tax benefits for offering retirement plans to employees to offer plans that meet certain requirements, including steady employer contributions at a minimum rate. As it stands now, employers can stop matching employee contributions into 401(k) plans at will, as many did during the fallout of the 2009 recession. A “soft mandate” would create tax incentives for employers to match employee contributions and continue matching, regardless of the economic climate. Such a policy could also encourage employers to offer plans with low administrative costs; many current plans charge significant fees for administration that erode employee savings.

The limits of retirement savings proposals

According to the most recent data from EBRI, 48.9 percent of all workers have access to an employer-sponsored retirement plan, and 39.7 percent of all workers participate in such a plan. The Plan Sponsor Council of America’s most recent survey of 401(k) plans reports that 81.6 percent of plans have an employer match provision, and 95.5 percent of plans that have a match provision made a match in 2011. In summary, then, only about 39.7 percent of workers have a retirement plan with an employer match. So, while automatic enrollment and improvements to 401(k) plans would likely improve the retirement prospects of many, they would not help the majority of Americans without access to such a plan in the first place. To do that in the framework of retirement savings reform, a plan that mandated employee contributions would be a necessary.

Some economists, however, have questioned the merit of retirement savings in general when compared to more direct forms of government spending. According to Eric Kingson of Syracuse University, “We already have a universal pension system. It’s called Social Security…It travels with you from job to job. I say build up the system.”

Virginia Reno, the vice president for income security at the National Academy of Social Insurance, added, “By the time you finish describing [such proposals], you’ve described the Social Security program…Why don’t we just do it with the system that’s already in place and works? Social Security is so much more efficient. Of the money that comes out, 1 percent is for administration, the rest is for benefits, which is not true of most anything you try to do through the private sector.”