Americans Stink at Retiring. Ask New Zealand.
Good news, America: A new report says you can alleviate your social-policy problems by copying other developed countries.
Wait, don't stop reading! I don't mean single-payer health care, paid maternity leave or affordable preschool. And I'm certainly not talking about functioning mass transit, national climate policy or mandatory voting. I get it -- nobody in the U.S. wants those things. (Well, maybe some of us do.)
The topic here is more modest: how to increase the number of people in employer-sponsored retirement plans. The Organization for Economic Cooperation and Development released a report today on pension plans, including a look at how different countries have tried to reach that goal and how much success they've had.
U.S. policy makers would be crazy not to look at those experiences. The retirement system is under siege from different directions: The lightning-fast decline of defined-benefit pensions at big companies is coupled with stingier 401(k) contributions from employers. Meanwhile, Social Security replaces just half the typical worker's income, compared with an OECD average of about two-thirds from similar government programs.
In the face of those challenges, a basic goal (though perhaps not a very satisfying one) is getting more Americans enrolled in a retirement plan of any kind. Even there, the U.S. struggles: Just 45 percent of U.S. workers have access to retirement plans, and only 34 percent of workers contribute to those plans, according to the Employee Benefit Research Institute. And there's a strong correlation between being in a plan and having enough for retirement.
Given the almost maniacal resistance to new government spending programs, how can the U.S. get more workers to take part in employer-sponsored plans? The OECD report offers a menu of options:
- In the U.K., a 2012 law requires employers to automatically enroll workers into a retirement plan. Workers can opt out, but only during the first month; after that they're locked in. Those who stay must contribute at least 2 percent of earnings, rising to 5 percent in 2017 and 8 percent in 2018. The law forces employers to chip in, too, but not as much; the minimum contribution is 1 percent of pay, rising to 3 percent by 2018.
- In New Zealand, anybody starting a new job since 2007 has been automatically enrolled into a retirement plan, with an eight-week window to opt out. The minimum required contribution is 3 percent of pay; the employer has to put in at least 3 percent as well. The government makes an initial contribution of NZ$1,000 ($770), plus 50 cents for every dollar the worker puts in up to an annual maximum.
- In Chile, starting in 2012, self-employed workers will have 10 percent of their covered earnings put toward private pension plans, through their tax rebates. Those that don't want to take part have to opt out before filing their taxes. There's no obligation for employers (because the system applies to the self-employed), and the state doesn't kick in any extra money.
- Italy has a very different approach: Since 2007, new private-sector employees must be automatically enrolled in retirement plans run by their companies, but don't have to contribute; the employer, on the other hand, has to put in 6.91 percent of wages, as well as match whatever the employee chooses to contribute.
Some of those models hold more promise than others. No Congress would ever saddle private employers with a mandatory retirement contribution as high as Italy's. And directing 10 percent of earnings from the self-employed, as in Chile, is too high to win support.
But the U.K. and New Zealand both offer appealing approaches. In New Zealand, the share of people younger than 65 contributing to a private retirement plan exploded, from less than 20 percent to about two-thirds. The share of covered workers in the U.K. has increased, too, though it'll take a few years to really see how well the plan works there.
Is any of this politically feasible in the U.S.? After Obamacare, "employer mandate" has become a toxic phrase, and so has anything that smacks of limiting personal choice.
But wait a few years. If the forces pushing down retirement savings aren't met by more pressure in the opposite direction, the need for a national change in policy will eventually be hard to ignore. This may be one of those times when other countries have something useful to offer. And it doesn't mean we all need to start driving solar-powered mopeds.
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