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Monday, April 13, 2009

Rethinking the U.S. Retirement System

For most Americans currently in the private-sector workforce, pension-based retirement models are now all but non-existent. Though certainly not without flaws, pension plans provided many retirees a level of security that is now, for most workers, a distant memory of something that was available to their parents' or grandparents' generations.

Yet the current recession is putting the spotlight on serious pitfalls of 401(k) programs and similar investment-based retirement plans in which workers for the past three decades have been staking their future hopes. And Social Security, which was never intended in the first place to be more than a bare-bones supplement, may also be headed for a crisis.

In this context, the possible need to re-think the retirement system in the U.S. is emerging as an important issue. So important, in fact, that four major nonprofit organizations — the Economic Policy Institute, the National Committee to Preserve Social Security and Medicare, the Pension Rights Center and the Service Employees International Union (SEIU) — have joined forces to launch Retirement USA, an initiative advocating for a new retirement system that, in conjunction with Social Security, would provide universal, secure, and adequate income for future retirees.

Ross Eisenbrey, vice president of the Economic Policy Institute, said, “The current private retirement system is failing most Americans. More than half have no employer-provided retirement plan and most of those who do are woefully unprepared as they near retirement. 401(k)s can’t do the job.”

Launched last month, the Retirement USA initiative centers on a set of core principles that include such concepts as:

  • Shared responsibility among employers, employees, and the government
  • Pooled assets that are professionally managed
  • Payouts only at retirement
  • Benefits that are portable from job to job

The organization is currently collecting proposals, which will be examined at a conference this fall, for a new retirement system. Retirement USA has also published a working paper that reviews problems with the current retirement system in the U.S. and outlines principles for a new system. To establish a comparative framework, the working paper also examines retirement systems in other countries.

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