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

What would such plans look like? Monique Morrissey said the hallmark of good retirement savings reform would be the creation of “hybrid multi-employer plans that are easier for employers to fund in advance and that provide steady, decent, and adequate incomes that don’t get capped during downturns, [plans] that people can’t take money out and borrow against.” Two high-profile proposals for a major revamping of the U.S. retirement savings system have been put out in the past year, both of which seem to meet Morrissey’s requirements.

The first of these, proposed by Senator Tom Harkin, is called the “Universal, Secure, and Adaptable” (USA) retirement fund. These funds would be universally available to all who do not already have access to a retirement plan with an automatic payroll deduction and “a minimum level of employer contributions” — though the proposal does not specify that minimum level. Those eligible would take advantage of the existing payroll-withholding system to deduct a specified amount of an employee’s paycheck and place it into the account. This would likely be 3 percent by default, though the employee could increase, decrease, or opt out of the contribution. Employers would be required to “make modest contributions,” but, again, the contribution level is not currently specified in the plan. The plans would be pooled, privately run, and professionally managed by “a board of trustees consisting of qualified employee, retiree, and employer representatives.” They would follow employees throughout their lives, and upon retirement, would pay a monthly annuity (with survivor benefits) just like a traditional pension.

The second proposal, formulated by Teresa Ghilarducci, Robert Hiltonsmith, and Lauren Schmitz, is called the State Guaranteed Retirement Account (State GRA). This plan would require mandatory employee contributions and, according to a working paper authored by the plan’s architects, would “guarantee a return of at least 3 percent, or about 1 percent above inflation.” The plan’s developers assert this rate of return would be naturally achievable, and that projections show “there is very little risk of the rate dropping below 4.9 percent over the long term.” However, they suggest funds should nevertheless take out insurance policies “with either the state or private insurers” to safeguard against shortfalls. Employers could contribute to the State GRA, but would not be required to do so.

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.”