Insurance

Our retirement system is failing too many Americans. The U.S. government needs to step up to the plate to lead our country in a new direction. America is the strongest, most prosperous, and most resilient nation in history. We can close our eyes, keep avoiding the problem, and end up with most of our retirees in poverty. Or, we can choose a new course - one that leaves no worker behind and ensures everyone a retirement with dignity after a lifetime of work.
Employers, workers, and the government share the responsibility for the retirement security for all Americans. When it comes to retirement security there is no quick fix. But we can't put the hard work off any longer. The stakes are too high. Here are 5 areas that I believe we need to address:

1. Empower All Americans:

With the transition from defined benefit pension plans to defined contribution plans, Americans are burdened with an investment risk they can't handle. They don't have the investment training, experience and wherewithal to take on this shift in responsibility. There is a universal need to help individuals know how much to contribute for their retirement and how to invest their assets.

The Social Security Administration expects that over the next two decades, 80 million Baby Boomers will apply for retirement benefits. While companies are doing some retirement communication, it generally is not universal and does not meet the mark. Our government can help encourage individuals to plan and save for their retirement:

• Include with the mailing of each annual tax return form, an easy to understand guide to retirement planning and investment. Add a link on the guide for recommended retirement planning software that is comprehensive and easy to use.

• Consider implementing a government sponsored, universal, and voluntary savings plan for all Americans that would provide a secure incentive for those not covered by an employer plan at a reasonable cost and with passive investment in low-cost index funds. Require employers who do not offer retirement plans to set up automatic payroll deductions into their employee's individual account and provide a 4% of pay employer contribution. Boost participation by having workers opt out rather than opt in. Distributions would only be made at retirement in the form of a cost-of-living annuity (with 50% to spouse in the event of the individual's death).This would provide a steady retirement income for life.

2. Social Security Needs a Permanent "Fix":

The 80 Million baby boomers will put incredible pressure on Social Security funding levels. There are only three ways to fix the problem: raise taxes, reduce spending, or make the current payroll taxes work harder by investing them in higher yielding securities.

• Raise taxes: Lawmakers could (1) increase the amount of income subject to the payroll tax that funds Social Security, (2) increase the tax rate on that income, or (3) tax on all Social Security benefits.

• Lower benefits: Choices include deferring the retirement age, lowering benefits, and lowering the cost-of living adjustments.

• Improve Investment: Invest payroll taxes in a diversified portfolio of higher yielding securities.

While the choices are many, the solution will likely include some combination of all of the ones listed above. The longer Washington waits, the more dramatic the changes must be.

3. Medicare Also Needs a Permanent "Fix":

Soaring healthcare costs are driving entitlement to grow at a rate much faster than the U.S. economy over the next several decades - by an average of 3% more than the U. S. economy. More than 85 million Americans rely on Medicare and another 80 million baby boomers are around the corner. As with Social Security, raising taxes and/or lowering benefits need to be looked at seriously, as well as:

• Eliminate Waste. Medicare waste is so common we rarely take any notice of it.

• Stop Fraud. Medicare fraud can be up to $100 billion dollars a year.

• Reduce Part D (Prescription Drug) Costs: Use Medicare's buying power to increase rebates from pharmaceutical companies.

• Undo ObamaCare Cuts for Seniors: Mr. Obama's pledge that "If you like your health plan, you will be able to keep it" clearly does not apply to America's seniors.The CMS Office of the Actuary estimates that the ObamaCare will force 7.4 million people (50 percent of enrollees) out of the Medicare Advantage health plans ("MA Plans") and put them back into a Fee-For-Service program. Doctors accepting Medicare patients are facing a 23 percent cut in reimbursements on Dec. 1, and another 2 percent in January unless Congress votes to exempt them from the cuts tied to a budget balancing formula adopted in the 90's. If the cuts are allowed to go into effect, many physicians may have to stop accepting Medicare patients, making it more difficult to find medical care.

4. Encourage Rather Than Discourage Defined Benefit Plans:

Our government is fostering a policy that encourages the freezing and termination of defined benefit pension plans. Yet these types of plans, that provide employees a dependable lifetime income, are just what Americans need to eliminate the investment and longevity risks that they can't handle. Here are some things the government could do to help future retirees meet their dreams and encourage the creation and continuation of defined benefit pension plans:

• Eliminate all Pension Benefit Guarantee Corporation ("PBGC") premiums for company plans where assets exceed liabilities under PBGC assumptions. Companies should not be penalized for properly funding their plans and, therefore, where insurance isn't necessary.

• Eliminate the cap on an employer's tax-deductible contributions, if the contribution will not over fund the plan on a PBGC basis by more than 20%. This will encourage companies to fund a reasonable cushion of protection.

• Eliminate the excise tax upon plan termination for the first 20% assets in excess of liabilities on a PBGC basis. This will also encourage companies to fund a reasonable cushion of protection.

• Eliminate all limits on an executives' participation in qualified retirement plans (e.g. no limit on compensation). By encouraging executives to rely on qualified plans for all of their retirement needs, they are in turn encouraged to develop and keep better plans for all employees.

5. Protect sources of retirement income:

Major declines and fluctuations in the values of investment assets and home values mean Baby Boomers will have far less money than they expected when they retire. They will have to save more, spend less, and work longer in order to meet their retirement dreams. To help mitigate the investment and longevity risks, Social Security could be expanded to allow individuals to transfer some or all of their savings plan balances into the Social Security system to "buy":

• An annuity from the Social Security System as they would from and insurance company but without the costly commissions and profit margins.

• Longevity insurance from the Social Security System (e.g. purchase a deferred annuity at retirement but with benefits that would be payable if and when the Social Security beneficiary or spouse attains age 80) also without the costly insurance company commissions and profit margins.

This would allow individuals to have a stable source of income. It will also remove some of the investment and longevity risk, at a reasonable cost.