TIAA-CREF officials are sounding the alarm on retirement security, warning that the demise of the so-called “three-legged stool" of retirement funding is leaving Americans less confident that they can fund a comfortable retirement.
To deal with this, a TIAA-CREF official testified at a Senate hearing, employers must emphasize that attaining retirement savings goals is a shared responsibility between employers and employees, and accordingly should offer matching contributions that encourage employees to contribute.
“We believe it is clear the nation is facing a retirement security crisis due to a number of factors, including changes in the way retirement is funded,” Edward Moslander, senior managing director, Institutional Relationship Management, at TIAA-CREF, testified.
He made his comments at a hearing called by the Senate Health, Education, Labor and Pension Committee on Savings: Are Workers Saving Enough for Retirement?
He said the problem is occurring because the traditional "three-legged stool,” which consists of defined benefit pension plans, Social Security, and personal savings acquired through defined contribution 401(k)-type accounts, has become increasingly unsteady, Moslander said.
The demise of this so-called “three-legged stool,” Moslander said, has created a situation where savings for retirement has become much more of an individual responsibility, and employers must do more to encourage employees to contribute to pension plans.
Moslander said while defined contribution plans enable workers to save for retirement, many eligible workers still do not participate and those that do often have a difficult time saving the 10-15 percent of their annual income that most financial experts agree is necessary to achieve a secure retirement.
In a statement issued in connection with the hearing, officials of the American Benefits Council (ABC) said that along with the current focus on economic growth and deficit reduction, Congress should also acknowledge the “indispensable” role played by pensions and 401(k) plans.
“Retirement savings plans are not only essential for the financial security of 129 million Americans enrolled in over 700,000 employer plans, but the $6.3 trillion in retirement assets is a critical source of investment capital for economic growth, said James Klein, ABC president.
Moreover, he said, as discussions concerning deficit reduction inevitably turn toward entitlement program reforms, “it is vitally important to recognize that without a strong employer-sponsored system, the financial pressure on Social Security would be even greater.”
He added that, “Enabling Americans to save more, therefore, is necessary for both economic growth and for ensuring retirement income security,” Klein said.
To achieve these goals, the Council recommends:
- Enhancing 401(k) automatic enrollment and automatic escalation features;
- Workable rules for hybrid pension plans;
- A more stable and flexible regulatory environment for the funding of traditional pension plans; and
- Streamlining notice requirements and permitting increased electronic communication between plans and participants.