New Blog Series Highlights Personal Savings and Retirement Security Issues

Jun 17, 2014, 08:30 ET from Bipartisan Policy Center

WASHINGTON, June 17, 2014 /PRNewswire-USNewswire/ -- The staff of the Bipartisan Policy Center's (BPC) Commission on Retirement Security and Personal Savings recently published a new analysis regarding the transition from defined benefit to defined contribution and with it the responsibility shift from employer to employee for retirement planning.

This analysis is the third in a series of posts intended to educate readers on savings trends and illustrate the importance of retirement security. Focusing on the issue of personal savings, the first post, Americans feel they are not prepared for financial emergencies, reports that 44% of Americans say they are not capable of meeting emergency expenses while the second post, Americans are saving less than we used to, discusses America's declining savings trends. You can read the full post analyzing retirement trends here or below.

Launched in April and led by former Senate Budget Committee Chairman Kent Conrad and Jim Lockhart, former Deputy Commissioner of the Social Security Administration under President George W. Bush, the commission intends to craft a package of realistic policy recommendations to address the future savings needs of Americans and model the recommendations' impact on retirement security and the federal budget.

As the commission works toward publishing its official recommendations in early 2015, BPC will continue to provide updates on and analysis of the nation's retirement security challenge. 

The switch from defined benefit to defined contribution has shifted responsibility from employer to employee

By Shai Akabas, Brian Collins and Alex Gold
Nick Peacher contributed to this post.

BPC's new Commission on Retirement Security and Personal Savings will examine the state of personal savings and retirement security in the U.S. and make recommendations on how to improve the economic circumstances of retirees. Over the next few weeks we will look at the many important measures that illustrate different aspects of savings and retirement security.

The number of companies offering any sort of defined benefit (DB) retirement plan of the sort that used to be common for employees of large unionized companies has steeply declined over the last few decades. DB plans guarantee retirees a specific cash benefit, often defined as a percentage of average salary during the final few years of employment, for the duration of their retirement. Even the prosperous companies on the Fortune 100 list in 2013 have been quickly shedding DB plans since the late 1990s.

During that time, many companies have switched to a defined contribution (DC) plan, such as a 401(k), where workers are responsible for contributing to and managing their own retirement accounts. Furthermore, many of those employers that still have DB plans have switched to hybrid plans that promise a cash balance at retirement, rather than an income based on percentage of salary. Of the 30 companies on the Fortune 100 that offered DB plans in 2013, only seven were traditional pension plans.

This trend probably suits the modern workplace because DC accounts are portable from employer to employer and tend to accrue benefits faster (than DB plans) during the early years of a career. On the other hand, the switch from DB to DC has shifted responsibility for contributing and managing investments (and the risk of poor investment returns) from employer to employee. Combined with falling rates of personal saving and the difficulty many Americans have in saving at all, that added responsibility means that too many Americans are heading toward and reaching retirement unprepared for the financial challenges ahead.

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SOURCE Bipartisan Policy Center