Familiar 401(k) critic Teresa Ghilarducci testified before Congress on Feb. 28, claiming America’s retirement system is “severely broken” and seniors must either “work or rely on the kindness of strangers to dodge the increasing risk of elder poverty."
Ghilarducci, a professor at the New School for Social Research, is currently promoting her latest book, Work, Retire, Repeat: The Uncertainty of Retirement in the New Economy.
She went before the Senate Health, Education, Labor, and Pensions (HELP) Committee, chaired by Sen. Bernie Sanders (I-Vt.), for a hearing titled “Taking a Serious Look at the Retirement Crisis in America: What Can We Do to Expand Defined Benefit Pension Plans for Workers?”
Ghilarducci, who frequently courts retirement policy controversy, co-wrote a high-profile 2021 white paper with conservative economist Kevin Hassett for the Economic Innovation Group (EIG), a billionaire-backed think tank advocating for radical reform of the retirement system.
The paper was the basis for a recently reintroduced bill, the Retirement Savings for Americans Act of 2023 (RSAA), a Thrift Savings-like Plan for private sector workers that the bill’s sponsors claimed would “help low- and middle-income Americans build wealth and save for retirement.”
Yet, the bill’s opponents claimed it would crowd out the private retirement plan market in favor of a complete public takeover, mainly because of the inclusion of a government-provided 5% federal match (1% non-elective and 4% safe harbor).
They note the government would only pay the employer match for those participating in the proposed federally-run retirement plan. In contrast, employers with their own plan would have to pay the match themselves. Critics say this would unfairly incentivize plan sponsors to abandon their private sector plans for the government option.
Ghilarducci confirmed the claim in a MarketWatch interview on Jan. 30, telling the outlet, “There’s a bill in Congress — from [Democratic Sen. John] Hickenlooper, [Republican Sen. Thom] Tillis, [Democratic Rep. Terri] Sewell and [Republican Rep. Lloyd] Smucker — that calls for a government match. It gets the individual employer out of it and focuses on the worker and the government.” [Emphasis ours]
Ghilarducci argued the American pension system lacks three basic elements: one that allows workers to accumulate money over their careers, invest their retirement savings “well,” and ensure they don’t outlive their assets.
Yet data contradicts Ghilarducci’s point. Far from destitute, the Federal Reserve’s Q3 2023 Survey of Consumer Finances found that Baby Boomers are the wealthiest generation in the nation’s history. State Auto-IRAs and provisions in SECURE 2.0 legislation aim to close the retirement plan coverage gap, and 2019’s SECURE Act included language specifically designed to promote guaranteed lifetime income products within retirement plans.
Wednesday’s hearing focused on “what can be done to expand defined benefit plans for workers,” according to a media advisory released last week, a retirement structure in decline for decades.
Its timing is noteworthy, coming amid an increasingly intense debate over the future of the 401(k) system ignited by a trio of academics who proposed a plan to limit contributions or accumulations in tax-advantaged retirement accounts to address Social Security’s shortfall.
Ghilarducci has long opposed 401(k)s and similarly structured defined contribution plans, once calling them “immature, underdeveloped children that need help over the puddle to the curve.”
Before her idea with EIG, she proposed adding Guaranteed Retirement Accounts (GRAs) to Social Security. A hybrid between a defined benefit pension and a 401(k)-type defined contribution plan, it would guarantee principal and an annual rate of return. It would also change the tax code to switch what she called “ineffective and regressive tax deductions for retirement savings into universal tax credits.”
In her testimony, she raised the prospect of a federal retirement plan similar to the Thrift Savings Plan and specifically mentioned the RSAA as the solution. In addition to the match, full- and part-time workers would be automatically enrolled at 3%, and the accounts would be portable and follow employees when changing jobs throughout their careers.
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