Problems abound in the current American retirement system — underfunding, confusing regulations, lack of access to retirement benefits, or not having enough financial knowledge to manage retirement plans are just some of the problems plaguing U.S. workers.

A proposal published recently by the Social Science Research Network seeks to combat these issues by establishing one private pension system for all working Americans with one set of rules.

The authors, Russell Olson, investor in residence, and Douglas Phillips, senior vice president of institutional resources, both at the University of Rochester in Rochester, N.Y., propose creating Trusteed Retirement Funds (TRFs), broadly diversified funds whose sponsors are trustees with fiduciary responsibilities.

A payroll deduction would automatically go into a TRF unless the employee opts out, chooses a preferred TRF, or already has access to a defined benefit pension plan. The TRFs would eliminate employers’ fiduciary responsibility for all future 401(k) contributions. In the process, employers would no longer receive tax deductions for the employer contributions to employees’ retirement accounts.

Retirees would be encouraged to use their savings to buy an annuity, and a federal agency would become the sole provider of annuities by taking bids from private insurance companies. The purpose would be to reduce the cost of annuities.

This proposal aims to fix some deficiencies in the current retirement system, which does not cover all workers and leaves many retirees without enough money saved. Only 68% of U.S. workers have access to retirement benefits, and only 53% participate in an employer-sponsored retirement plan, according to the U.S. Bureau of Labor Statistics. 

“Today most defined benefit plans in the private sector are closed to new employees, and those in the public sector are dramatically underfunded,” the authors explain. “A patchwork of defined contribution retirement plans — such as 401(k)s, 403(b)s, and IRAs — now serve as the primary retirement saving vehicles in the private sector, but they are complex, costly and challenging for employers and employees to manage.”

Changes are necessary to boost the amount of retirement savings that Americans accumulate during their careers. “This approach would use our federal tax spending for retirement in a way that would encourage retirement savings by the maximum number of American workers,” the authors predict.


However, Andrew Remo, the congressional affairs manager for the American Society of Pension Professionals and Actuaries, criticizes the proposal for taking away employers’ tax incentives and flexibility in customizing plan design. He believes it is “extremely unlikely” that Congress would take up the idea.

“It calls for ending the 401(k) as we know it and looping everybody into a one-size-fits-all mandate situation. It ignores the underpinning of the system,” he says, referring to the tax incentives that encourage employers to provide 401(k) contributions.

Additionally, he notes that under this proposal, benefit brokers “wouldn’t have anything to sell because there would just be one option.”

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