(CNSNews.com) - After health care reform, is pension reform around the corner? The Government Accountability Office – the investigative arm of Congress – has laid some of the groundwork for pension reform by publishing a study of the “retirement risks” posed by private pension plans in the United States.
 
“Many experts agree reforms are needed to make the U.S. private pension system more effective in protecting workers from risks to accumulating and preserving adequate savings for retirement,” says the GAO report. “If no action is taken, a considerable number of Americans face the prospect of a reduced standard of living in retirement."
 
The July 2009 report is addressed to Rep. George Miller (D-Calif.), chairman of the House Education and Labor Committee. Miller is an advocate of “retirement security.”

As part of its study, the GAO examined the pension systems of the Netherlands, Switzerland and the United Kingdom and found that private pensions in those countries “represent alternative approaches” that could “yield useful lessons for the U.S. experience.”
 
The GAO also examined four “key” domestic proposals to reform the U.S. private pension system – including a government-sponsored, mandatory system called the Guaranteed Retirement Accounts (GRA) plan.
 
Under this plan, the federal government (Social Security Administration) would establish and administer a system of retirement savings accounts – guaranteeing a specified rate of return on those accounts.
 
Currently, pension plans offered by private employers in the United States are voluntary and include tax incentives to encourage participation.
 
The problem
 
According to the GAO study, stock market losses and poor economic conditions have put many U.S. workers at risk of not having an adequate retirement income from their private pension plans. Older Americans are less confident in their ability to retire. “Even before the current economic recession, research indicated that pension benefits are likely to be inadequate for many Americans,” the GAO study said.
 
Pointing to national survey data, the GAO noted that about half of the U.S. workforce was not covered by a pension plan in 2008.
 
Workers covered by defined contribution plans -- such as 401(k)s and IRAs -- risk making inadequate contributions or earning poor investment returns, the study found, while workers with traditional employer-sponsored, defined-benefit plans risk future benefit losses due to a lack of portability if they change jobs.
 
Leakage (withdrawing money before retirement), high fees, and “the inappropriate drawdown of benefits in retirement” are other concerns, the GAO said.
 
Trade-offs
 
The GAO says its study focused on the Netherlands, Switzerland, and the United Kingdom because their private pension systems address many of the risks that U.S. workers face. Those systems also demonstrate “mandatory approaches can be used to increase coverage or contributions,” the GAO said.
 
But, as the GAO also noted, mandatory approaches – which have produced nearly universal coverage in the Netherlands and Switzerland -- also pose trade-offs. For example, in the Dutch and Swiss systems, sharing investment risk requires assets to be pooled and thus limits individual choice. And requiring annuities as a way for retirees to draw down their benefits limits people’s access to their assets.

Mandatory, government-run pension system here?
 
Of the four domestic proposals examined in the GAO report, only one is both mandatory and run by the government. Guaranteed Retirement Accounts (mentioned briefly above) would increase retirement savings by low- and middle-income households and provide a basic retirement income for workers, the GAO said.
 
Under GRA, both workers and employers would pay a mandatory minimum contribution of 2.5 percent each. Borrowing from the plan would be prohibited; and hardship withdrawals would be allowed only in case of disability.
 
Tax preferences for 401(k) plans and Individual Retirement Accounts would be replaced by a uniform $600 tax credit for all workers, regardless of income. State and local governments would have to notify the federal government of marriages and divorces so that contributions can be apportioned evenly between husbands and wives. State governments also would have to report who is receiving unemployment benefits to the Internal Revenue Service.
 
A centralized pension plan such as GRA would make “portability” easier and economies of scale would lower administrative costs, the GAO report said. But such a plan “may also be a costly and complex effort that requires new regulatory and oversight efforts. These costs could be passed on to workers, employers, and taxpayers in general.”
 
Three other domestic pension proposals examined by the GAO were more voluntary in nature. Two of those three were run by the private sector.
 
The GAO study concluded that no retirement system or pension proposal is perfect: “The challenge for Congress will be to balance the interests and responsibilities of workers, employers, and the government and find the most promising steps to help Americans achieve retirement security.”
 
Rep. Miller, to whom the GAO report is addressed, promised in October 2008 that his Labor and Education Committee would continue to “examine what measures may be needed to ensure a safe and secure retirement for workers, retirees and their families.”

At a House Education and Labor Committee hearing in February, Miller said it’s time for Congress to address “difficult questions about the state of our nation’s retirement system as a whole and look to see whether we need to create a retirement system that works for all Americans, not just the fortunate few.”