Many people aren’t saving enough for retirement, and even those who are saw their savings take alarming dips during the recession. Now, a new report calls the traditional IRA and 401(k) plans inefficient and risky, and suggests a different kind of retirement account. The Center for American Progress calls it the “SAFE Plan”. Plans would be organized as nonprofit organizations run by independent boards that include plan members.
According to Gary Burris, senior policy associate at the Economic Opportunity Institute, such SAFE Plans would use an investment strategy known as “smoothing” for less risk and more long-term stability.
“And what smoothing means is, in years when you have a high return rate, you don’t put all that money back into the pool; you sort of save that, for the years when there’s a low return rate,” Burris said. “So that those people who are in the retirement phase of the plan aren’t seeing big drops or gains in their retirement payouts.”
The report also says there are too many hidden fees associated with the current crop of retirement accounts, fees that erode investors’ nest eggs.
The attraction for employers is that they wouldn’t have to guarantee specific returns for retirees. The report says a SAFE Plan would be run more efficiently than a traditional retirement account, so it has a better chance of achieving its growth targets. And Burris said businesses would be more likely to offer retirement plans if it cost them less to do so, which is key to getting more people to save.
“There are people who are already in plans, and there’s definitely some need there to get more efficient and better returns and less cost,” he said. “But the much bigger problems are the millions of people that don’t have anything right now, and that’s mainly the small business sector, the small-business work force.”
According to the report, SAFE Plans would be available to all workers regardless of whether their employer offered retirement benefits before the plan was introduced. The sole objective of SAFE Plans would be to maximize long-term benefits for all participants.
The SAFE Plans would require approval by Congress. See a report on SAFE Retirement Plans at bit.ly/1808po2.