When it comes to robust retirement systems around the globe, the U.S. is ranked 19 of 150 different countries, and American business from lawmakers to employers and plan sponsors can learn from some of those international success stories.
The good news, says Sen. Orrin Hatch (R-Utah), is that the private employer-based retirement savings system in the United States particularly 401(k) plans and Individual Retirement Accounts has become the greatest wealth creator for the middle class in history and represents truly shared prosperity. Hatch, incoming Chairman of the Senate Finance Committee, spoke Monday at the Financial Services Roundtables Retiring Around the Globe: Is Americas System the Best?
Hatch says he hopes to advance legislation expanding the use of multiple employer plans, allow public defined benefit plans to purchase private annuities and create a starter 401(k) plan for small private-sector employers. The proposed Secure Annuities for Employee retirement act is a public and private pension reform bill introduced earlier this year that seeks an increased role for retirement asset management to fall to insurance companies as fixed-annuity contracts.
We must encourage sponsors who dont offer plans to start, he says, emphasizing his Starter 401(k) plan. The Starter 401(k) plan in my legislation could help to revolutionize retirement savings for employees of small businesses throughout the country.
Global retirement comparisons
While the U.S. has on the whole remained stagnant around in its spot on the international rankings one retirement system that has been consistently moving up in ranks is New Zealands, says Edward Farrington, executive vice president of Natixis Global Asset Management. The Global Retirement Index takes into account a holistic picture of retirement including health care, having material means for a comfortable life and access to quality financial services.
New Zealands program, The KiwiSaver Program, has been in place since 2007. The national automatic enrollment retirement plan also includes a $1,000 kick-start, a mandated employer contribution of at least 3% and an annual tax credit for employers.
While the ease of the auto enrollment features are important for employees, Farrington says, the tax incentive is also an important motivation.
Jim McCaughan, CEO of Principal Global Investors, says the U.S. has the bare bones in place for what could be a very successful system.
There are key elements McCaughan says that need to be in place to bolster the U.S. system, including changes to funding, participant direction and tax incentives.
But looking forward, there are also still concerns industry needs to acknowledge, and as Hatch points out, the retirement of the baby boom generation is putting enormous pressure on public programs like Social Security and Medicare.
And, as part of the unending effort on Capitol Hill to find more revenue to pay for increased spending, some have proposed reducing the allowed contributions to 401(k) plans and IRAs, he says. A move that would be both short-sighted and foolish, he adds.
One thing we have learned over the years is that the key to successful retirement savings is participation by employees in a plan at work, and the key to convincing employers to sponsor a plan at work is a healthy contribution limit, Hatch adds.
The U.S. system by international standards is not perfect, McCaughan notes, but its not bad.
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