Retirement security seems to be an issue that the candidates running for president are running away from. But they shouldn't, according to growing number of executives in the financial services industry.
In fact, executives and others are demanding that President Barack Obama and Gov. Mitt Romney, the presumptive Republican candidate, lay out their respective positions on various retirement security issues, such as Social Security, automatic IRAs and the like.
Earlier this month, for instance, Robert Reynolds, the chief executive officer of Putnam Investments, asked in no uncertain terms that Obama and Romney endorse the tax incentives now in place for retirement saving programs such as the 401(k) and start debating how to make Social Security solvent.
In short, Reynolds called on the candidates from both political parties to recognize retirement security as not only a vital national challenge, but a key element in solving our nation's debt and deficit crisis over the long term. "If we solve the retirement challenge it would have a huge benefit for all Americans," Reynolds said in an interview. "If someone's future is secure, it allows them to do so much more with their lives."
Weeks later, we're still waiting.
Obama and Romney have not responded to Reynolds' call. So, we set out to learn what each of the candidate's positions are on some of the major retirement security issues, and to echo Reynolds' plea for action as well.
When it comes to making Social Security solvent, a spokesperson for Romney referred us to the campaign's website. And here's what Romney wants to do to fix Social Security:
First, for future generations of seniors, the retirement age should be slowly increased to account for increases in longevity. And two, for future generations of seniors, benefits should continue to grow but that the growth rate should be lower for those with higher incomes.
"With just those two simple steps, and no change in benefits for those at or near retirement, America can guarantee the preservation of the Social Security system for the foreseeable future," according to Romney's website.
Obama hasn't laid out a specific plan either so much as he's laid out what he calls guiding principles for fixing Social Security. The President, according his 2012 budget, "has called on the Congress to follow the example of great party leaders in the past" and "work in a bipartisan fashion to strengthen Social Security for years to come."
And here are Obama's six principles for reform: Any reform should strengthen Social Security for future generations and restore long-term solvency; The Administration will oppose any measures that privatize or weaken the Social Security system; while all measures to strengthen solvency should be on the table, the Administration will not accept an approach that slashes benefits for future generations; no current beneficiaries should see their basic benefits reduced; reform should strengthen retirement security for the most vulnerable, including low-income seniors; and reform should maintain robust disability and survivors' benefits.
To be sure, that's not precisely a plan. But based on other public documents, what seems apparent is this: Obama would likely favor a mix of revenue increases and benefit cuts, though likely more revenue increase than benefit cuts, as outlined in two bipartisan panels convened to fix Social Security.
"While the components of these proposals vary and some include components that would be troubling if implemented they all share a unifying feature: They include revenue increases as one component of achieving solvency. For example, recent plans from the Bowles-Simpson and Domenici-Rivlin commissions include about one-third of their savings and two-thirds of their savings from increased revenues, respectively," according to documents sent to MarketWatch from Obama's campaign office.
The Bowles-Simpson plan would, according to the campaign documents, cut the Social Security benefit of the median retiree in 2050 by 13% while the Domenici-Rivlin plan would cut the Social Security benefit of the median retiree in 2050 by 9%.
As for Reynolds, well, he wants more and, he said in an interview, the American people deserve more. "Neither of the candidates has taken a stand on retirement security issues as they ought to," he said. "It's something that we strongly believe the American people should demand."
And that's especially so given the rise in poverty among the elderly, the fact that some 10,000 baby boomers are retiring each day, and the recent reports issued by the trustees of the Social Security and Medicare funds.
"If not now, when?" asked Reynolds. "This thing has been kicked down the road for a long time ... And it's the most fixable one out there."
Obama has long been a proponent of what's been called the automatic IRA. In fact, Obama's 2013 budget once again contained the Automatic IRA, a plan developed by Brookings' Retirement Security Project in conjunction with The Heritage Foundation, two think tanks not known for agreeing on much.
According to the administration's website, there are more than 75 million working Americans about half the workforce who don't have access to a retirement plan through their employer and the auto IRA would solve that problem. And in February of this year, Rep. Richard Neal, D-Mass., once again filed legislation proposing that employers who have more than 10 people on the payroll and have been in business for at least two years offer their workers a retirement savings option through payroll deduction.
An email request to learn Romney's current position on automatic IRAs went unanswered. As best as I can tell, Romney, who owns an IRA worth more than $100 million, doesn't have a position on auto IRAs.
For his part, Reynolds said whether the auto IRA becomes law or not shouldn't be a partisan issue. "It's been proven that workplace savings do work," he said. "The problem is that (workplace savings) only cover about half of working Americans. So that leaves the other half uncovered. We definitely need something in that area. The universal (auto) IRA is a great option."
Tax treatment of retirement plans
Reynolds, describing it as "non-negotiable," also said neither Obama nor Romney should eliminate the tax incentives now in place for 401(k) plans, IRAs and other savings vehicles. "We now face a very real risk that policymakers could severely undercut incentives for 401(k)s, IRAs and other savings vehicles in the course of trying to reduce federal deficits," Reynolds said in his speech before the Financial Services Roundtable earlier this month. "That would be a huge step in the wrong direction at a time when we should be doing all we can to shore up savings and retirement security."
Reynolds warned that cutting back such incentives could send millions more working Americans toward retirement with little or no retirement savings. "It is hard to imagine a more perverse and destructive policy error than undercutting private savings to try to cope with out-of-control federal deficits," Reynolds said. "National solvency and personal solvency go together. We should never pit one against the other as proposals to cut retirement savings incentives would do."
"What drives us crazy is that (lawmakers in Washington) always list retirement as a tax expenditure," Reynolds said. "It is not. It's a tax deferral that is taxed as normal income when people retire To me it is the most misnamed thing in Washington."
Earlier this year, by the ways, Rep. Dave Camp, R-Mich., the chairman of the Committee on Ways and Means, held a hearing on possible reforms to certain tax-favored retirement savings plans that might be considered as part of comprehensive tax reform.
For the record, most experts who testified at that hearing also urged lawmakers against eliminating the tax incentives for retirement plans.
"We need a combination of public/private savings to ensure that people have a dignified retirement," Reynolds said.
It's not going away
The issues around retirement security aren't fading away. Earlier this week, Bankrate.com's Retirement Blog cited a Gallup poll on economic concerns. Jennie L. Phipps writes: "A new Gallup poll of voters puts the performance of Americans' savings and retirement accounts as No. 6 on the list of economic concerns facing the country today. The top five are health care, unemployment, the federal budget, weak economic growth and the cost of a college education. Gallup also asked people to rank how they thought the two likely candidates for president measured up on handling these issues. Most people think neither President Obama nor Mitt Romney have a strong position on retirement issues, according to this poll."
Obama also supports 401(k) fee transparency and adding lifetime income options to retirement plans. Earlier this year, for instance, the Treasury Department and the Internal Revenue Service released two proposed regulations, and the IRS issued two revenue rulings, that provide different strategies for doing this. Learn more about those rulings and proposed regulations.
I've not been able to determine whether Romney supports these efforts or not.
A time to talk
So, we arrive at this point. We know Obama's positions on some retirement security issues and not others. We know Romney's positions on some retirement security issues and not others. And now it's time for both to share their respective positions on Social Security, Medicare, IRAs and the like. After all, the retirement security of at least 300 million Americans is at stake here and time's a wasting.
"Much of this is not partisan," said Reynolds. "The question to answer is: 'How do you provide a dignified retirement for Americans? Even the thought of elderly poverty increasing is something no one should stand for. And we need to find out, especially in this historic Presidential election year, where they stand on this issue."