The Senate's Plan for Our Retirement: Inadequacy for All

On Friday Sen. Tom Harkin, who heads up the Health Education Labor and Pensions Committee, announced a proposal to make "bold changes to the private retirement system and Social Security."

The changes? No reforms at all to the drastically underfunded 401(k) plans. Employers who don't offer a 401(k) plan would have to set up a retirement plan in which employers must withhold an unspecified portion of their employees' pay and deposit it to "privately-run, hybrid pension plans." In addition, employers would have to make "modest contributions" to employee accounts. And Social Security payments will be boosted by a measly $60 a month. This is bold?

As I've pointed out in previous posts, the reason why the U.S. is among the pension poorest in the world isn't that not enough people are covered by a 401(k) plan, but that those who are receive a measly matching contribution equal to 3 percent of pay. That compares to 9 percent for Australia, 11.8 percent for Denmark, 8 percent for Hungary, 6.5 percent for Mexico, 7.3 percent for Poland and 9 percent for Slovakia. A 2008 report on retirement savings for Australians projected that Australians in their 20's and 30's are projected to have assets of between $500,000 to $700,000 when they retire -- compared to a median balance of less than $100,000 for the typical American retiree. To simply require all U.S. employers to set up an inadequate plan is a disservice to the American population.

Inadequate retirement savings are the major driver behind the inability of many aging Americans to keep up on their mortgage payments. According to a study by AARP, one and a half million Americans over the age of 50 lost their homes between 2007 and 2011. That's because half of households between 65 and 74 have no retirement money and even those who do have saved an average of $65,000 which isn't enough to cover payments on the $140,000-plus mortgages that half of them are making, according to the Bureau of Labor Statistics. That's why the mortgage meltdown is going to get worse.

My 401(k) reform proposal, developed with leading pension actuaries, would mandate more generous employer contributions-- equal to 9 percent of pay for Fortune 500 companies and 6 percent for other companies -- and require contributions to be consistent through an employee's job tenure. Employee contributions would not only be allowed as soon as people start a job -- currently one quarter of employers surveyed by the Vanguard Group make employees wait a year -- but employee "ownership" of these contributions -- otherwise known as "vesting" -- would be immediate. While there's been much talk of employees "cashing out" of their 401(k) savings when they change jobs, a huge chunk of the workforce doesn't even own the employer contribution to their accounts. Currently 54 percent of Vanguard's clients make their employees wait one to six years before they are completely vested in employer contributions, hurting the majority of job-hopping Americans, according to its report, "How America Saves 2011." According to the Bureau of Labor Statistics, the average person born in the latter years of the baby boom changed jobs roughly every two years between the age of 25 and 46 alone.

Whether you support every recommendation in my proposal, I urge you to reach out and get Capitol Hill to take this crisis seriously. It's too late to create significant reform for us boomers -- most of us will have to work at least another decade past retirement age. But we've got to do something for our kids and grandkids. Please contact Harkin's office at and let your voice be heard.