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Susan Tompor: Is there a better way than the 401(k) to build retirement savings?

McClathcy-Tribune Information Services

June 4, 2018


If you believe 401(k)s are a joke ó many people will never save enough or invest well enough to retire ó then perhaps the idea of a mandatory savings account might do the trick.

Itís not an idea thatís likely to spread like wildfire, given that a massive retirement crisis isnít going to erupt tomorrow. And 401(k) savers who rode the wave of the bull market, frankly, arenít complaining much these days.

Yet Hamilton (Tony) James, executive vice chairman of Blackstone, is pushing the notion of a new type of mandatory savings account based on a long-term worry.

"Weíre going to have huge numbers of the elderly poor," said James, who spoke to the Detroit Economic Club on Thursday at the Westin Book Cadillac in Detroit.

James is the co-author with labor economist Teresa Ghilarducci of a new book called "Rescuing Retirement: A Plan to Guarantee Retirement Security for All Americans."

He told the Detroit group that only about 15 percent of Americans have a defined-benefit pension plan. Among the rest, only half have a 401(k) plan and the other half have nothing, he said.

Millennials have a particularly tough time, he said, because theyíre burdened by student loan debt and some donít start saving for retirement until well into their 30s.

People might not have retirement savings because they work for an employer who does not offer a 401(k) plan or a pension; some donít want to participate and save money in a 401(k) plan.

Other surveys have raised similar alarm bells: The Federal Reserveís report on the economic well-being of households in 2016-17 indicated that many consumers report that they lack retirement savings.

"When asked what types of retirement savings or pension they have, 28 percent of non-retired adults indicate that they currently have no retirement savings or pension whatsoever," the Fed report said.

The report noted that oneís savings can vary by age and health, as well as income. Almost 90 percent of employed respondents age 45 or older have retirement savings, but only 34 percent of those who are out of work because of a disability have retirement savings, the Fed stated.

James first raised the idea of a national retirement savings plan in 2015 and the new book further drives home that point.

The plan is for a Guaranteed Retirement Account where workers and their employers would each contribute 1.5 percent of wages into the accounts. The plan would create a new $600 federal tax credit for all savers. As a result, a lower income saver would be able to save because their contribution would be offset by the credit itself.

The money would be managed by professionals, much like a pension plan. The payouts at retirement would be based on a lifelong annuity for the retiree and spouse.

"Itís your money. Itís your account," James said. The plan would not replace Social Security.

James told the group that the need is there and the idea is there but he acknowledged that thereís no crisis tomorrow to create that sense of urgency.

James said people would be allowed to stay in the 401(k) or move to the guaranteed retirement account.

"As a person, youíll have a choice," he said.óóó