Harkin-7-13-13-159_8x12“Today, it’s about one out of six, and it’s getting worse by the month. We have a huge retirement-gap problem in America. I once referred to it as the most under-reported crisis confronting America today: the lack of retirement security for so many people.” Sen. Tom Harkin



Perspective is valuable in figuring out how things turned out the way they did. And when it comes to the retirement crisis facing the United States and other countries, Tom Harkin’s views on the subject are well formed.
When he went to Washington DC as a rookie Congressman in the mid-70s, representing Iowa’s Fifth Congressional District, one of every two Americans had the retirement security of a traditional pension, a defined benefit plan. Things have changed.

“Today, it’s about one out of six, and it’s getting worse by the month. We have a huge retirement-gap problem in America. I once referred to it as the most under-reported crisis confronting America today: the lack of retirement security for so many people,” Harkin told ARIA during a recent conversation.

Following ten years in the House of Representatives, Congressman Harkin became Senator Tom Harkin in the mid-80s, serving the people of Iowa in the American Senate until his retirement last year. The institute that bears his name, The Harkin Institute for Public Policy and Citizen Engagement, “exists to inform citizens, inspire creative cooperation, and catalyze change on issues of social justice, fairness and opportunity.”
That includes retirement security, an issue Harkin championed during his time in Washington. In his final address to the Senate, he urged his colleagues to focus on four issues: climate change, employment for people with disabilities, passing the UN’s treaty for people with disabilities, and closing the inequality gap between rich and poor.
The latter is tied to the retirement crisis, he says. As a senator he tried to get legislation adopted to fix this gap, his USA Retirement Funds Act. Information heard during the hearings for the legislation informed his views as to the seriousness of the problem.
“I had, as chairman of the committee in the Senate on this, a number of hearings on retirement security, going back several years … trying to develop legislation to bring forward a new type of retirement program in America,” he says, spinning off data that shows the depth of the problem: 75 million Americans have no retirement plan at all, while 50 per cent of all working-age Americans have less than $10,000 saved for retirement.
“An actuarial group testified that there is a gap from what people have saved and what they will need of about $6.6 trillion … over the next 20 and 30 years.”
The situation is particularly problematic for middle-income workers, but perhaps even more so for women and minority groups; women, he says, make less in retirement because of the wage gap that pays them less than their male counterparts during their working years, and “our hearings showed that black and Latino families have about a fifth of what white households have in their retirement accounts.”
His retirement legislation would incorporate measures increasingly seen to be vital in addressing the retirement crisis: mandatory enrolment and employer participation. For examples, he looked to Australia, the Netherlands, and the UK’s NEST model.
The plan envisioned under the USA Retirement Fund Act would, in essence, be a shared-risk model that would relieve employers of the fiduciary role, which would be outsourced to an investment company. Assets would be pooled, allowing for low fees and access to investment classes, including private equity and infrastructure. The retirement benefit would be known, but would move with the prevailing market winds ­– but only slightly, he says.
While Harkin wasn’t able to get a Republican co-sponsor for his bill, similar approaches are underway in two states – California and Oregon – with others actively considering such plans.
Auto-enrolment, he says, employs behavioural science to work around barriers to joining an existing plan, with data showing that the vast majority of workers stay in once they join. (For an ARIA story on that, click here).
“For employers, they would just have to put a keystroke in their filings and a certain percentage of an employee’s pay goes to the investment firm – just like they do in Social Security where a certain amount goes to the Treasury. It’s not a lot of paperwork or burden for employers, and they aren’t the fiduciaries.”
Employer contributions would be in the range of three per cent, but could be enriched for recruitment and retention purposes, he suggests.
Thinking back to his early days in Congress, he recalls the introduction of 401(k)s, which weren’t meant to replace a company’s pension plan. They were a kind of supplemental savings program for executives. (Read this for more on that). He recalls “like it was yesterday” the arguments being made to sell them: that a healthy nest egg could be created through the market – one that could be willed to loved ones.
“I remember that. It was a big selling point.”
As the 80s moved on, a number of factors contributed to the demise of private-sector DB plans, including, says Harkin, the breakup of large unionized companies into smaller non-unionized businesses that adopted the 401(k) model as their retirement scheme.
But on a certain level, he says, “people were asleep at the wheel,” not fully realizing what was happening and what the long-term impact of moving away from DB would be, without having anything to replace it. He is, however, optimistic that at the very least, the lack of adequate retirement income, what he calls a pressing national crisis, is being discussed and addressed.
A solution to the retirement crisis, maintains Harkin, could create a “virtuous economic cycle” where large pooled assets might be invested in infrastructure projects, creating jobs funded by private, not public money, and where retirees with income would remain consumers and economic contributors.
“I think that is the way to go. Everyone wins with a system like that, the virtuous economic cycle.”

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