Pamela Perun and Eugene Steurle propose a two-stage model for reforming the U.S. private pension plan system. The first, ERISA at 50, modifies the current structure by vastly simplifying its plans and rules. The centerpiece is a standard defined contribution plan that includes a simplified option for employee savings. The second stage, ERISA at 65, transforms the private pension system into an employee-centric system. It replaces the superstructure of the employer-sponsored plan with individual accounts.
The U.S. private pension system today has two primary, inter-related problems. There are too many types of plans and too many types of rules. The result is a chaotic and complicated system that discourages employer participation. It is also an inefficient and expensive system where too many benefit dollars are spent on the plan compliance industry rather than on plan participants.
We propose a two-stage model for change. The first, ERISA at 50, modifies the current structure by vastly simplifying its plans and rules. The centerpiece is a standard defined contribution plan that includes a simplified option for employee savings. The plan would apply to all types of employers and have a single set of eligibility standards, distribution rules and FICA-tax treatment for both employer and employee contributions. It also enhances the role of IRAs, enabling them to achieve parity with employer plans through a savings limit that is coordinated with limits under qualified plans. The proposal also adapts defined benefit plans to an aging workforce by reducing disincentives for work and promoting phased retirements. It also advocates alternatives to nondiscrimination rules that increase benefit accruals by moderate-income workers.