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June 4, 1998

Summit Focuses Attention on Need for Retirement Security: Portability, Education Emphasized; Negativism about Defined Benefit Plans Virtually Non-Existent

by Cynthia L. Moore
Washington Counsel, National Council on Teacher Retirement

Introduction.

Over 200 delegates representing all sectors of the pension industry met in Washington on June 4 and 5 to participate in the National Summit on Retirement Savings. NCTR was well represented by Gene Waschbusch and Frank Ready. Gene, Chief Executive Officer of the St. Paul Teachers' Retirement Fund Association, currently serves as NCTR's president. Frank is a past president of the organization and is the Executive Director of the Mississippi Public Employees' Retirement System. The purpose of the Summit was to examine the state of retirement savings and explore how to educate Americans about the need to create a secure financial future. As part of the program, the delegates broke into small groups and discussed both the barriers and the opportunities for employers and employees to get involved in pension plans.

What drove the creation of the Summit?

The abysmally low savings rate threatens Americans' retirement security. In 1997, Americans saved only 3.9% of their disposable income.

The vast majority of Americans depend on Social Security for the major part of their retirement income. Social Security is intended to ensure a minimum income for older Americans; it was never intended to provide the same standard of living they enjoyed during their working years.

Few small business owners offer pension plans. Only 19% of workers in organizations employing fewer than 25 people have access to retirement savings at work, compared with 48% of those working for organizations that employ 25-99 people, and 83% of those in organizations that employ 100 or more people.

Women and minorities face special challenges in saving for retirement. Women tend to have shorter job tenures than men and are disproportionately employed in the service and retail sectors, where pension coverage tends to be lower than in other sectors. Only a third of Hispanic-Americans and African-American participates in a pension plan versus 50% of white Americans.

NCTR Participation.

Gene commented that "the Summit attendees I spoke to were receptive to the ideas successfully used in state and local government plans through defined benefit plans. Such plans can include COLAs and help to keep retirees off of the relief rolls, as well as offer portability features such as purchase of service credit." Gene distributed NCTR Principles on Retirement, that includes a reference to NCTR's LIFEPLANTM, a life planning program, including retirement issues that will appear on NCTR's website in a few months. According to Frank, "the conference identified low small business pension coverage as a critical problem. State and local government plans are different. We are successful in the coverage area and represent a strong part of the 3-legged stool, which is made up of an employer-sponsored pension plan (such as NCTR-member retirement systems), Social Security (for those states and localities that participate in it), and personal savings. The area where we are concentrating our efforts is to encourage employees to voluntarily save in their 403(b)s and 457 plans."

Little Discussion on Defined Benefit/Defined Contribution (DB/DC) Controversy.

As noted below, ideas that came out of the Summit discussions were very general. Little discussion arose on the relative merits of DB vs. DC plans. The main concern was the need to expand opportunities for Americans to save more and reduce barriers that inhibit savings. Ideas brought out at conclusion of Summit.

1) Provide incentives to help small businesses to offer pension plans

2) Encourage portability (many delegates acknowledged that pending legislation, such as the Pomeroy RAP Act and the Portman-Cardin bill, would do much to help portability)

3) Educate children about the need to save

4) Encourage employers to provide a match through 401(k) plans

5) Continue simplifying pensions to reduce costs

6) Meet the needs of women and minorities in providing pensions

Benefits of Summit.

The Summit highlighted pension issues, which could translate into action on pending legislation. It also provided the chance for representatives throughout the pension world to build bridges with one another. The next Summit is scheduled for 2001. June 1998