A leading progressive retirement academic and the head of one of the world’s largest private equity firms are presenting a radical retirement policy in a new report: a national retirement savings plan.
Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at The New School, and Tony James, president of Blackstone, have issued a report on their proposal: a national plan that they say “ensures every worker a more secure retirement.”
The report, “A Comprehensive Plan to Confront the Retirement Savings Crisis,” proposes a system of Guaranteed Retirement Accounts (GRAs) for all workers as an alternative to the current system, which it says “favors investments that deliver subpar returns; offers lopsided subsidies for the wealthy; and leaves the vast majority of workers unable to save enough for retirement.”
Under that existing system, the average retirement savings totals $14,500, while what’s needed is an average of $290,000 in savings—a massive gap.
The proposed GRAs, which would cover 95 million workers, would be owned and controlled by the worker.
And there are plenty of specifics on how they would function. Workers would contribute 1.5 percent of their annual income, which would be matched by a 1.5 percent contribution from their employer—which, the report declares, together with Social Security, “is the minimum needed to close the gap.”
The contributions are “mandatory, but cost-neutral for almost all workers below median income,” it says, because “[t]he 1.5 percent employee contribution is offset by a deficit-neutral tax credit.”
Other particulars include the fact that participants would own their fund and choose their portfolio manager. Assets would be invested with long-term, low-fee strategies to generate better returns—targeting a return of 6–7 percent, whereas 401(k)s only bring in 3–4 percent per year.
And the government would guarantee a minimum return of 2 percent per year.
Because it would use existing structures and redeploy “existing regressive tax subsidies toward workers at the bottom 90 percent of income distribution,” the plan would not be a new program run by the government, nor would it increase the deficit or create a new government bureaucracy, the authors declared.
And without action on the scale of their proposed program, they foresee a bleak future for the country
“If we stay on our current path,” Ghilarducci and James wrote, “America will face rates of poverty among senior citizens not seen since the Great Depression. The strain of this population will have resounding effects across the economy, the government and future generations”