Bob Collie, chief research strategist for Russell Investments’ Americas Institutional business, recently polled retirement plan sponsors about three big areas of potential change to the U.S. retirement system: risk sharing, mandatory saving and getting employers out of sponsoring the plan themselves.
In his report, “The future of retirement: Three big ideas that could reshape the U.S. retirement system,” his first question to participants was about risk sharing and whether or not the retirement industry should look at ways to build a pension system that shares risk between the employer and the employee and whether they would be willing to share the risk.
The majority of respondents said that they should probably move to this type of model.
“While most felt that risk sharing was a good idea, there was less of a sense that the idea was likely to be adopted, with the most common response being a lukewarm ‘possibly,’” Collie said in his paper.
Risk sharing takes many forms, including cash balance plans, he said.
“Better examples can be found in recent proposals in the U.K., where the concept is being referred to as ‘defined ambition,’ and in Canada, where a number of provinces have made moves toward what they call ‘target benefit plans,’” he said.
The U.S. has moved strongly away from defined benefit plans to defined contribution plans, which may make it hard to switch gears.
The next question was, “Do you think that retirement saving should be made mandatory?”
With half of all Americans not saving for retirement because they can’t afford to or they don’t have access to a plan, there is a major coverage gap in the U.S., Collie said.
Forty-nine percent of respondents said that everybody should be required to set some money aside for retirement, with an additional 40% saying employees should be defaulted into the plan but have the ability to opt out.
“This is an idea that appears to have legislative momentum. There have been repeated proposals at the federal level for an auto-IRA, and also a number of initiatives at the state level — with Illinois currently having progressed the furthest — to the same end,” Collie said in his paper.
The next idea was to get plan sponsors out of the plan. That means allowing them to participate in a wider group plan instead of having to sponsor it themselves.
“The choice of answers allowed respondents to make a “yes” answer contingent upon regulatory clarification that the employer would be able to outsource all fiduciary responsibility except the responsibility for selecting and monitoring the provider,” the report said.
Also see: Managed account adoption rates low
Fifteen percent said they were in favor of the idea and nearly 50% said they liked the idea but only if they could get the right fiduciary reassurance. Forty-seven percent felt that with the right regulatory framework, the idea would take off. Only 2% felt the idea would definitely happen.
The solution would be to have multiple-employer plans run by the federal government or state governments or by private providers offering master trusts open to anyone, he said.
“The employer’s role would be limited to selecting a provider (if there is a choice) and handling the payroll deduction,” he said.
At the end of the survey, Collie asked participants which idea they liked best. Fifty-six percent liked the mandatory saving idea the best, while 23% liked the idea of shared risk.
“The polling we conducted was only on a small scale, but the answers are nonetheless informative,” said Collie. “They reveal a greater openness to change than we expected: A majority of respondents were at least somewhat positive toward each of the three areas of change we set out.”
Paula Aven Gladych is a freelance writer based in Denver.
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