A new GAO report offers an unflattering analysis of the country’s hybrid public-private retirement system -- and an urgent call for action. (Photo: Shutterstock)

The challenges to the country’s retirement system are vast and complex.

A freshly released and exhaustive report from the Government Accountability Office, a non-partisan agency often referred to as Congress’ watchdog, paints an unflattering picture of the nation’s hybrid public-private retirement system:

  • The Social Security trust fund is hemorrhaging cash and expected to be depleted within two decades, if not before.

  • The Pension Benefit Guaranty Corp.’s multi-employer insurance program is also facing insolvency.

  • Meantime, only half of Americans have access to workplace savings plans.

  • Wage stagnation and rising health care costs have conspired to make saving for retirement impossible for low-income Americans.

  • Those that make enough to save are shouldering the burden of navigating investment and longevity risk virtually on their own through self-directed 401(k) plans, as the list of employers that are sued for fiduciary breach in the plans they sponsor grows.

Industry stakeholders, regulators, consumer advocates, academics who focus on retirement security, and the legal community are well acquainted with the picture painted by GAO.

While the facts are not new, the course GAO recommends in the report is.

Much of the agency’s previous and extensive work on retirement issues was the result of specific inquiries from members of Congress. But this time around, it is the GAO that is making a request of lawmakers.

In “The Nation’s Retirement System,” which reads at more than 150 pages, GAO is calling for a comprehensive reevaluation of the country’s retirement system, and goes so far as to suggest that Congress launch an independent commission to examine policy options, much as was done in the early 1980s prior to Social Security reform.

“If no action is taken, a retirement crisis could be looming,” wrote Gene L. Dodaro Comptroller General of the United States, in the report’s preface.

As part of the report, GAO convened a panel of 15 experts last year to explore potential policy options, and to discuss the successes and failures of incumbent policies.

Read on for 10 takeaways from that discussion, as laid out in GAO’s report:


1. GAO panel tapped policy experts and industry stakeholders


The 15 panelists were selected to span the range of ideological diversity among policy experts and industry stakeholders. Among them were:

  • Phyllis Borzi, who was then the Assistant Sec. of Labor and head of the Employee Benefits Security Administration

  • Harry Conaway, President and CEO of the Employee Benefit Research Institute

  • Cindy Hounsell, President of the Women’s Institute for a Secure Retirement

  • Will Hansen, Senior Vice President for Retirement Policy at the ERISA Industry Committee

  • David John, Senior Strategic Policy Advisor at AARP

  • Melissa Kahn, Managing Director, Retirement Policy Strategist State Street Global Advisors

  • Teresa Ghilarducci, Professor of Economics and Director of the Schwartz Center for Economic Policy Analysis, The New School for Social Research

  • Warren Cormier, CEO and Founder of Boston Research Technologies


The report provides a record of the panel’s daylong discussion.

While it includes direct quotes from panelists, the quotes are not attributed to specific panelists.


2. Current policies are a concern.


Many of the panelists agreed that a retirement crisis is in the offing, but opinions differed on what that crisis would look like.

The report said there was broad agreement on the need to address Social Security’s impending insolvency.

“Most of the discussion focused on the weaknesses of the current system from the perspectives of individuals trying to save for retirement, from employers wanting to help their employees save for and manage their retirement, and from government agencies trying to oversee and administer a very complex system designed to help individuals and employers accomplish these objectives,” the report said.


3. The retirement system puts a strain on individuals.


 “The shift of risk that we have put on the individual worker in the United States retirement system is a mess. It’s the investment risk, it’s the longevity risk, the health risk, the long-term care risk…ultimately we’ve put so much risk on individuals who don’t really have the tools. And the tools that are out there to help them cost a lot of money.”   __Panelist on the lack of tools to address risks


4. Current tax incentives favor higher earners.


Several panelists said current tax incentives to save provide great financial incentives for higher-income individuals, but are less effective in encouraging enrollment and the accumulation of retirement savings for lower and middle-income individuals.

One panelist commented that tax advantage policies mainly subsidize retirement saving that would have occurred regardless of the tax advantage, as opposed to encouraging new saving.

“When we think about our tax code it does wonderful things to encourage savings by people who can afford to save. It doesn’t do much for the people at the low end who are living just on Social Security.

“I don’t want someone to take that Social Security check and go to a payday lender because they need to get their car replaced because that’s how they get to the doctor.” __Panelist on disparity of tax incentives


5.  There are limitations on financial literacy efforts.


Some panelists argued that efforts to enhance financial literacy among workers have not moved the needle on savings rates.

One panelist said little progress had been made in spite of innovations in financial literacy tools. Another said enhanced financial literacy can lead to greater indecision for some savers.

“We have a very, very acute problem with financial literacy. And I think it’s actually gotten worse. As the financial instruments have gotten more complicated, it makes it less likely that people can understand what they’re doing.” __Panelist on the problem with financial literacy


6. The current system is burdensome for employers.


The present private sector retirement system is too complex and burdensome for employers, and presents too much financial and litigation risk, panelists said.

Some panelists said more employers may find it in their best interest to not sponsor a plan.

 “Mandating employers to do things that make them noncompetitive is not a good thing for the country.” __Panelist on the employer’s role in promoting retirement savings


7. Don’t create a government mandate to save.


Panelists generally agreed on the importance of providing better access to ways to save for retirement in addition to Social Security, according to the report.

Some resisted the idea of creating a federal mandate to participate in savings plans.

“It’s hard to imagine how you broaden the coverage in terms of retirement security without doing something more dramatic, more directive. I’m not saying it has to be a mandate. It could be stronger incentives, different types of matches.” __Panelist on increasing access to savings vehicles


8. Do create a government mandate to save.


Other panelists argued the country needs a new federal mandate to save for retirement, as has been implemented in the United Kingdom.

“When it comes to coverage, there’s only one way to do it. It’s a mandate. If you don’t require that people have coverage, if they don’t require that they have an account, whether that’s employer-sponsored or employer-facilitated, it’s not going to happen, period. And that’s the experience in the UK.” __Panelist on the need for a federal mandate


9. Keep it simple, stupid.


There was broad consensus on the need to simplify saving for both individuals and employers.

Some panelists advocated for new investment selection safe harbors that would limit employer risk.

Others suggested attaching new accounts to Social Security, which would allow private accounts to be rolled over to government-administered funds.

 “You don’t need financial literacy in order to get Social Security. You just need to pay your contributions in or have the employer do that for you–when compared with everything else, it’s very, very simple.”  __Panelist on simplifying savings


10. The future role of plan sponsors may change.


Employers’ role facilitating savings has changed dramatically over the past 40 years.

That role can be expected to continue to evolve.

“It seems every week another employer is getting sued, and they’re going to withdraw from what is a voluntary system. I see the future for employers as being funders and facilitators of benefits–rather than as plan sponsors.”  __Panelist on the future role of employers