From Here to Security: How Workplace Savings Can Keep America's Promise

By Robert L. Reynolds

The practical, nonpartisan guide to making our retirement savings systems work for America’s people, our economy, and the nation at large

At a time of fierce political divisiveness, From Here to Security is a refreshingly balanced, non-ideological guide to solving what may be our nation’s most pressing policy challenge: achieving retirement security for all.

A pioneer of the 401(k) system, Robert L. Reynolds eschews radical calls for throwing out the 401(k) entirely and creating a new government-run savings system. Our best course, he shows, is to build on what we have: a flexible, dynamic private-public system of Social Security and more robust workplace savings. From Here to Security provides a clear, powerful new approach to solving America’s retirement challenge – based on facts, data, and Reynolds’ decades of experience.

While fear-mongers claim that the U.S. retirement system is on the verge of collapse; Reynolds shows why our system is actually the envy of the world. But From Here to Security is no status quo book.

Reynolds lays out an action agenda to dramatically improve our retirement systems – public and private – lift our savings rate, improve people’s retirement prospects, spur faster growth – and reboot America’s national morale.

• Language: English
• Publisher: McGraw-Hill Education
• Release date: Sep 8, 2017
• ISBN: 9781260116083

Book preview

Praise for

FROM HERE TO SECURITY

A top leader in the field shows where our nation has been and where we need to go to become a nation of savers. Makes a cogent and powerful case for adopting the payroll-based Automatic IRA and expanding workplace saving—automatically enrolling tens of millions of working households in IRAs and employer plans. A concise, engaging, and informative prescription for bipartisan action to give all Americans greater retirement security and a stake in a faster growing economy.

—J. MARK IWRY, Nonresident Senior Fellow, the Brookings Institution, and former Senior Advisor to the Secretary of the Treasury

It’s become fashionable of late to describe the 401(k) plan as a failure. But in his book, Bob Reynolds makes it clear that you can’t blame a drought on the well. The 401(k) works fabulously when it’s made available to employees by an employer. Unfortunately, too many Americans still do not have access to a 401(k) at work. The many suggestions outlined in the book would go a long toward fixing this problem and allowing Americans the opportunity to achieve a secure retirement. It’s not the fault of the 401(k) that not enough people have one. Bob Reynolds has laid out the path to getting there.

—BRIAN GRAFF, Chief Executive Officer, American Retirement Association

Retirement should be something we look forward to, not be worried about, and effective workplace savings programs are critical to ensuring more Americans start saving and can comfortably retire. My friend Bob Reynolds has a passion for addressing our retirement challenges, and has spent decades helping millions of Americans achieve a secure retirement. I worked closely with him on the Portman-Cardin reforms that expanded retirement savings, and I continue to seek his counsel today. This new book examines America’s retirement system honestly and comprehensively, and makes the case that further strengthening defined contribution retirement plans offers us a way to increase savings, and gives more Americans the peace of mind that comes with having a secure retirement.

—ROB PORTMAN, Senior Senator from Ohio and Member of the Senate Committee on Finance

An edifying, pragmatic, and important contribution to the retirement security debate. This clear-eyed analysis of where we’ve been and where we’re going should be required reading for policy makers, business executives, and nonprofit leaders—or anyone interested in helping Americans retire with dignity. The bold ideas in this volume—especially proposals for national automatic IRAs, refundable tax credits for retirement savings, and birthright retirement accounts—would, if enacted, be a huge step forward in our quest to build an inclusive savings system that builds financial security for all.

—IDA RADEMACHER, Director, The Aspen Institute’s Financial Security Initiative

Bob Reynolds is a true leader on retirement policy and an outspoken supporter for providing workplace savings to all Americans. For years, he’s promoted innovative solutions to addressing our retirement crisis, including his continued support for my proposal, the automatic IRA, which would provide a retirement savings opportunity at work for millions of workers that’s in addition to Social Security. I applaud Bob for his relentless drive to ensure that all Americans are financially secure in retirement.

—CONGRESSMAN RICHARD E. NEAL, Ranking Member House Ways and Means Committee

America has an urgent need to get more people better prepared for retirement. Bob Reynolds answers the call by clearly and boldly outlining his ideas to help solve the challenges workers and families across America face as they struggle to save for retirement.

—GOVERNOR TIM PAWLENTY, CEO and President, Financial Services Roundtable

Retirement security is an essential but often overlooked driver of economic growth. When individuals are given the tools to save for retirement, they’re not only securing their futures, they’re fueling the capital markets that drive our economy. As one of the pioneers of workplace retirement savings, Bob Reynolds has dedicated his career to giving consumers those tools and strengthening the economy for all of us. In From Here to Security he applies his trademark passion and pragmatism to a public policy challenge that is highly technical, deeply personal, and unquestionably consequential for our nation’s future.

—TOM DONOHUE, President and CEO, U.S. Chamber of Commerce

The economics of retirement combine complicated policy questions about finance with complex cultural questions about personal responsibility. Few leaders from any sector can rival the deep expertise that Robert Reynolds brings to bear on these challenging issues. Any reader who cares about the future of the U.S. economy should dig into From Here to Security and learn from his hard-won experience.

—ARTHUR BROOKS, President, American Enterprise Institute

Retirement savings are not just about helping secure income for retirees. They are a critical component of our whole economy. They fuel America’s world-leading capital markets and help millions of working families create real wealth. For decades, Bob Reynolds has spoken out for public policies to increase retirement savings and help all working Americans gain access to savings plans on the job. I’ve had the pleasure of working with Bob on ways to simplify our tax code and ensure that retirement savings are protected and expanded. Because as he points out in this vital book, stronger retirement savings can actually help drive faster growth—our top national goal. From Here to Security lays out clear, practical ways to achieve that.

—CONGRESSMAN KEVIN P. BRADY, Chairman, House Ways & Means Committee

From Here to Security offers unique insights on how to shape the future of American retirement that every plan sponsor, participant, retiree, and policy maker should embrace. Based upon Reynolds’s decades of continuous experimentation and testing, he sets forth a game plan for the nation to move from the 50-yard line to the goal line for the touchdown of retirement security.

—DALLAS L. SALISBURY, Resident Fellow and President Emeritus, Employee Benefit Research Institute

Saving is vital to any country’s economic health. For households, it builds resilience against life events and creates wealth that can ensure an adequate income in retirement. For any nation, saving provides a vital engine for long-term economic prosperity and stability. Bob Reynolds is to be congratulated on his compelling analysis of these benefits and for highlighting the critical role of workplace plans in encouraging people to save.

—ADRIAN COOPER, CEO, Oxford Economics

Ensuring that all Americans can retire with dignity is an ongoing and ever-evolving policy effort. Drawing on his impressive experience in the retirement savings space, Bob Reynolds provides a thorough accounting of the many retirement challenges facing workers and families, along with thoughtful proposals on improving access, increasing savings, and converting those savings into lifetime income. Mr. Reynolds’s book makes the compelling case that retirement security is truly a bipartisan goal worth fighting for—and a goal that has not only powerful economic consequences, but also immense psychological, political, and social value.

—BEN CARDIN, Senior Senator from Maryland and member of the Senate Committee on Finance

Retirement deficits for all U.S. households currently ages 35–64 are simulated to be $4.13 trillion according to EBRI’s Retirement Security Projection Model.® It was clear that a bold plan is needed to both improve the level of deficit reduction overall and focus specifically on those who had already reached age 55. The plan that Bob Reynolds describes in this book is indeed such a plan. If adopted, the Empower Retirement Workplace 4.0 agenda for reforms would make a larger dent in America’s savings shortfall than any retirement reform proposal EBRI has analyzed. Some shortfalls would remain, notably among the very poor and among those who require costly long-term nursing home care. These challenges are not easily met through workplace savings alone. But the proposals offered in Bob Reynolds’s book would be a huge step forward for working Americans and for our economy.

—JACK VANDERHEI, Director of Research, the Employee Benefit Research Institute (EBRI)

Retirement security is one of many great and growing challenges we face today. In meeting these challenges, we are all better off when Bob Reynolds brings his voice to the public square. His insight on the public debate helps facilitate the solution-oriented thinking we need.

—CONGRESSMAN PETER J. ROSKAM, Chairman, Tax Policy Subcommittee, House Ways and Means Committee

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FROM HERE

HOW WORKPLACE SAVINGS CAN

TO SECURITY

KEEP AMERICA’S PROMISE

________

ROBERT L. REYNOLDS

WITH

LENNY GLYNN AND JOHN MITCHEM

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Copyright © 2018 by Robert L. Reynolds. All rights reserved. Printed in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.

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ISBN 978-1-260-11607-6

MHID 1-260-11607-7

e-ISBN 978-1-260-11608-3

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McGraw-Hill Education books are available at special quantity discounts to use as premiums and sales promotions or for use in corporate training programs. To contact a representative, please visit the Contact Us pages at www.mhprofessional.com.

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Dedicated to the working people of America who deserve financial freedom and dignity in retirement, and to my parents, Bill and Juanita Reynolds, with limitless thanks.

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Find the good and praise it.

—ALEX HALEY, author, Roots

When considering any major policy change, it is essential, not optional, to weigh the political feasibility, not just the design elegance, of any proposed solution.

—RICHARD PARKER, author, John Kenneth Galbraith: His Life, His Politics, His Economics

To see what is in front of one’s nose needs a constant struggle.

—GEORGE ORWELL

CONTENTS

ACKNOWLEDGMENTS

The fact that I’ve dedicated this book to my parents suggests, rightly, that I owe debts of gratitude that go back decades—to those who’ve shaped my views and made this book possible. So thanks to my great professors and fellow students at West Virginia University, who gave me my first insights into finance. Thanks to dozens of people I worked with at Fidelity Investments—too many to name—who made it possible for us to build America’s largest retirement services firm. And special thanks to Edward Ned Johnson, an amazing business genius, who asked me to take on the challenge of creating a new company, FIRSCo, to serve a then-small market—called 401(k)—back in 1988. Working for Ned Johnson was a real privilege.

Thanks, too, to all those who helped prepare this text. First, to Lenny Glynn, who has worked with me on policy and speechwriting since the turn of this new millennium, and whose deft hand is visible throughout; to our collaborator, John Mitchem, whose research helped deepen our database and widen our global scope; to Sue Asci and Rene Taber, whose fact-checking and permission-securing was essential; to Dan Kennedy and his design team at Putnam who developed our cover concept; to Boston’s best PowerPoint maven, Steve Madero; and to the two best aides any CEO could have: Susan Talmage and Melinda Costanzo. Thanks to our savvy editor at McGraw Hill, Donya Dickerson. Let me also propose a toast to John Ike Williams, our deservedly legendary lawyer/agent/counselor—and pal.

Kudos to the men and women like Jack VanDerhei, Dallas Salisbury, Mark Iwry, Merl Baker, Bridget Madrian, Richard Thaler, and many others—who devote their professional and academic lives to the retirement research that we’ve drawn on so heavily. And a great shout-out to farsighted political leaders like Senators Rob Portman and Ben Cardin and Congressman Richie Neal—who use those insights to craft legislation that has improved the lives of millions of working Americans. Most of all, thanks to my awe-inspiring wife, Laura, to my children, and to all young Americans: lifting up your futures inspired us to raise this call for change.

May you all go . . . From Here to Security.

PREFACE

Ididn’t plan on this when I was growing up, but building retirement security in America has turned out to be my life’s mission.

From leading the 401(k) business at Fidelity Investments in the 1980s, to becoming CEO at Putnam Investments in 2008, to helping create America’s second-largest retirement services firm, Empower Retirement, in 2014, I’ve spent more than three decades working to grow and continuously improve America’s workplace savings system.

Over 30 years ago, I was there for the infancy of the 401(k). I’ve seen multiple generations of change in workplace savings since then, as 401(k)s and other defined contribution (DC) plans expanded, evolved, and matured to become Americans’ primary source of future retirement income.

I’ve had a hands-on, close-up view of the dynamic changes in workplace savings, such as digital reporting, web-based planning tools, and target date funds that align with a saver’s planned retirement date. Some of these changes, like steadily falling fees, were driven largely by market competition. Some stemmed from insights in behavioral finance, some from wise public policy, notably the Pension Protection Act of 2006, which was the first time Congress seriously treated DC plans as a central element of America’s retirement picture. Over all these years, I’ve seen amazing progress toward a most worthy goal: the chance for a dignified retirement for all.

But the job is not done. We still have miles to go to bring all working Americans from here to retirement security.

This book aims to show the way. I believe—and I hope to convince you—that we can solve America’s retirement challenge, just as we solved the challenge of polio, or getting to the moon, or creating the Internet. Better still, by doing so, Americans can begin to restore our faith in our ability to govern ourselves. And best of all, by increasing our savings rate and channeling those savings to capital markets, we can help America’s economy to grow far more robustly.

We have a great base of public and private retirement systems to build on. Our workplace savings—401(k) plans and similar payroll deduction options—already provide a vital supplement to Social Security. Together, Social Security and workplace savings blend common purpose and individual aspiration in ways that strengthen both.

Think of it this way: Social Security is an obligation that working Americans owe to each other across the generations; workplace savings is a voluntary opportunity that each of us owes to ourselves and to our families.

Given its central role in reducing the once-routine tragedy of elderly poverty, Social Security may well be America’s greatest public policy achievement of the twentieth century. It provides a life-and-death income source for low-income retirees. It is critical for middle- and upper-middle-income retirees as well. And, as we will see, it offers a serious share of income—even to the affluent, well up into the top tenth of Americans by wealth.

Both the public retirement finance system, Social Security, and the private system of workplace savings need strengthening, and the ways to do that are quite straightforward.

I say that with some confidence because the rise of workplace savings plans over the past generation, especially since the Pension Protection Act of 2006, constitutes a massive socioeconomic experiment conducted right in plain sight. And the results are in. We can clearly see how crucial Social Security is as a baseline. And we can see how retirement plan design, technology, professional guidance, and individual savings behavior combine to deliver on the most basic goal: reliably replacing preretirement income for life. That metric—retirement readiness—is what all savings systems aim to achieve.

And based on what we see in the comprehensive Lifetime Income Surveys (LIS) we do at Empower Retirement, and previously at Putnam Investments, I would argue that the three core solutions to America’s retirement savings challenge are blindingly obvious: (1) make Social Security solvent, (2) extend workplace savings options to all working Americans, and (3) make all workplace savings plans fully automatic and aim for savings of 10 percent or more. Challenge met. Problem solved.

But as George Orwell shrewdly noted, To see what is in front of one’s nose needs a constant struggle. And when it comes to retirement policy, that struggle is almost entirely political.

Being political, debate on retirement issues is often marred by one-dimensional analyses, ideological biases, and sheer hype. We see a constant flood of books and articles pitching the idea of a looming retirement crisis. Putting forward such frightening predictions has become a cottage industry. Anxiety, fear, and blame may sell, but these fear-mongering books and articles grossly exaggerate the real challenges we face.

Many critics use unfair, one-sided, and partial analyses to argue that we’re heading for a retirement finance abyss or that the 401(k) system is somehow a failure. They go on from those false premises to propose radical changes that have no chance of ever happening, such as scrapping 401(k)s in favor of a new government-run savings model. Such proposals strike me as exercises in futility. None of these schemes for total overhaul make real politically feasible reform any easier.

My view is that, despite multiple imperfections, Social Security and our evolving system of workplace savings actually complement each other’s strengths. Without conscious planning, we in America have evolved a hybrid retirement finance engine that enables workers to benefit from diversified income sources, drawing