Retirement Security Is Crucial Issue For White House, Economic Official Says

Pension & Benefits Daily

A crucial issue for the Obama administration is retirement security, Lawrence H. Summers, assistant to the president for economic policy and director of the National Economic Council, said Aug. 1

Retirement security issues are included in the administration’s economic strategy, Summers told a retirement research conference sponsored by the Social Security Administration and the Retirement Research Consortium.

“Social Security is the bedrock of retirement security and has to remain the bedrock,” Summers said. Any reform of Social Security will have to include the program as a base from which workers can build for retirement security and as a program on which they can rely, he said.

Disclosure of financial information associated with retirement security also is important, Summers added.

The recent depletion of pension assets has led to the delay of retirement for many workers who otherwise are eligible to retire, Summers said. Economic uncertainty, longer life spans, and health and disability issues also may have contributed to workers delaying retirement, he said.

“If we do not get health care [costs] under control,” they will have a decidedly negative impact on the budget, notwithstanding whatever is done regarding retirement security, Summers said. “Over the course of the president’s term, I am confident that retirement security will be addressed.”

He described the administration’s approach to health care reform as “unusual” in that the central effort is to bring costs under control. “The question of cost is at the center of the debate,” he said, adding that previous debates and decisions such as on the Medicare prescription drugs benefit did not consider costs.

“Rescuing the economy is priority number one” for the administration, and while the economy’s free fall has been contained, “we still have a long way to go,” Summers said.

Savings Rate

No progress was made on retirement security during the economic expansion that led up to the economic crisis, Summers said, adding that President Obama has been very clear that he wants to address the issue of retirement security, including the savings rate.

Summers suggested that the previous practice of looking at one’s net worth in terms of determining retirement security may be out of date. For example, he cited the practice of including housing equity in determining net worth, which then was factored into retirement security.

When the economic free fall occurred and housing values declined markedly, individual net worth dropped dramatically and so did people’s retirement security, Summers noted. There is volatility associated with using house value, not just for net worth but for retirement security as well, he said.

Summers suggested that targeting the savings rate to measure retirement security may be a more appropriate alternative to net worth.

Financial Disclosure

Too many transaction costs and undisclosed risks are associated with today’s economy and its financial transactions, including retirement, Summers said. He cited credit card fees and bank overdraft charges as two recent examples of lack of transparency of both costs and risks.

“There is room for considerable policy attention to the fraction of return on savings due to both market risks and administrative transaction [costs] associated with retirement security,” Summers said.

As the administration pursues the issue of financial regulation and retirement security, individual choice should be preserved and disclosure of appropriate information to make choices should be provided, he said.

By Michael W. Wyand