As we prepare to observe National Save for Retirement Week (alsoknown as “National Retirement Security Week”), scheduled forOctober 16-22, it’s a great opportunity to remember why we, asindividuals, need to save for our retirement.

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But the sobering reality is that we are all being called upon tosave retirement itself—by rescuing a retirement system that doesn’t work formillions of hardworking Americans.

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On one level, the answer is simple: each of us should just save more.

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But there are other, more systemic issues, such as economics,demographics, an under-funded Social Security system and a leakydefined contribution system. When you combine theseintractable problems with a highly partisan political environment,the prognosis can be bleak.

Senator Kent Conrad’s journey to save retirement

According to the ICMA-RC: “National Retirement Security Weekcommenced in 2006, when Senators Gordon Smith (R-OR) and Kent Conrad (D-ND) introduced the first resolution establishing National Save forRetirement Week. Their goals were to elevate public knowledge aboutretirement savings and to encourage employees to save andparticipate in their employer-sponsored retirement plans.”

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Now, a decade later, former Sen. Conrad continues his leadershipon the retirement front through his service on the BipartisanPolicy Commission, where he co-chairs (along with Sen. James B. Lockhart III) their 19-memberCommission on Retirement Security and PersonalSavings.

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After two years of intense debate and deliberation, theCommission reached bipartisan consensus on the most criticalinitiatives required to strengthen retirement security and toeffectively “save retirement” for millions of Americans.

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The fact that Sen. Conrad’s Commission reached bipartisanconsensus on so many difficult issues is no small feat.

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On June 9, the Commission presented their recommendations in thereport “Securing Our Financial Future: Report of theCommission on Retirement Security and PersonalSavings.”

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The report identifies six challenges for retirement security andpersonal savings, including:

  1. Too many Americans lack access to workplace retirement savingsplans.

  2. Americans are increasingly at risk of outliving theirsavings.

  3. Home equity is underutilized in retirement—if it lasts untilthen.

  4. Many Americans lack the basic knowledge to manage their personalfinances and prepare for retirement.

  5. Social Security is at a crossroads.

  6. Many Americans lack the income or resources to save forshort-term needs—so they raid their retirement accounts (causing“leakage,” or the premature removal of assets from the retirementsystem).

The problem of retirement savings leakage

The Commission’s analysis and recommendations offer aninnovative approach to addressing the problem of retirement savingsleakage.

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The Commission’s report does the following:

  • Correctly identifies cash-outs as the primary source of leakage,as opposed to loan defaults or hardship withdrawals, which debunksa popular misconception about retirement savingsleakage.

  • Hits the mark dead-on when it points out that participants withsmaller balances are more likely to cash out their retirementaccounts, citing cash-out statistics supplied by Vanguard.

  • Accurately assesses the magnitude of the leakage problem at“hundreds of billions” each year.

One point that the Commission’s report does not adequatelyaddress is the notion that the majority of cash-out leakage isdriven by economic hardship.

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Research on America’s mobile workforce performed by BostonResearch Technologies suggests that post-separation, just overone-third of cash-outs are made for “emergency” purposes, when aparticipant has an urgent need for funds.

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Thus, almost two-thirds of cash-out leakageoccurs for non-hardship reasons, and could be dramatically reducedif our retirement savings were portable, and participants couldeasily choose to consolidate their retirement savings as theychanged jobs.

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The sad reality is that billions of dollars of retirementsavings are squandered every year, simply because job-changingparticipants’ easiest and most-tempting choice at the point ofleaving their old employer and joining their new one was to cashout their retirement savings.

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This lack of portability costs millions of Americans a timelyand comfortable retirement. In fact, a 2012 Employee BenefitResearch Institute (EBRI) projection model has shown that, ifcash-out leakage were to be reduced by one-half, Americans wouldadd $1.3 trillion to their retirement savings over just 10years.

Shutting off the retirement savings leakage

In the report’s recommendations, the Commission correctlyestablishes the linkage between retirement savings portability andreducing cash-outs. In testimony on September 7 before theSenateCommittee on Aging, Sen. Conrad weighed in on the importance ofportability, while offering some personal anecdotes, stating:

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“Finally, we recommend the creation of a retirement securityclearinghouse to ease the process of consolidating retirementplans. Let me just say, after leaving the Senate, one of thethings I did was turn some attention to our own financialsituation…my wife’s and mine. And what I found is that I’vegot accounts here…drib-drab…over here…you know, a little accountover there. Most Americans face the same thing, and it wouldbe a tremendous advantage if we were able to consolidate theseplans.”

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The fact that D.C. policymakers are beginning to realize thebenefits that retirement savings portability can deliver inreducing cash-outs, thereby increasing retirement security formillions of Americans, is a positive development. As aresult, specific portability initiatives such as auto-portability are now moving forward, and havebegun to receive the favorable attention of public policymakers,plan sponsors and service providers.

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As Americans observe National Save for Retirement Week, we hopethat they’ll not only consider how they can individually save forretirement, but how they can contribute to saving ourretirement as well.

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The Bipartisan Policy Committee’s retirement securityrecommendations are a great start.

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