New TIAA Institute Report Says Reform of U.S. Retirement System is Needed after Study of International Retirement Systems

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Sep 09, 2024, 10:00 ET

Researchers Propose New U.S. Model featuring the best elements from defined contribution and defined benefit plans

NEW YORK, Sept. 9, 2024 /PRNewswire/ -- Fifty years after legislation was passed to protect workers' retirement savings, a new report by TIAA Institute calls for reforms to the current U.S. retirement system by proposing a more modern framework to support the needs of today's retirees.

The report, The Future of Retirement Security, studies the transition of seven countries from defined benefit (DB) to defined contribution (DC) retirement plans. Defined Benefit plans, also known as pensions, promise workers guaranteed income in retirement. Defined contribution (DC) plans, like 401(k)s, do not automatically promise a level of retirement income.

According to the report, as lifespans increase and the number of employees with access to DB plans decrease, many countries are implementing interesting solutions to offset challenges created by an expanded retirement period.

Research shows the average retiree can expect to spend about two decades in retirement, roughly double the time from 50 years ago. In addition, four in 10 Americans are at risk of outliving their retirement savings, and 57 million workers do not have a retirement savings plan – underscoring the severity of the retirement crisis.

"Life expectancy has risen by 17 years in the United States since the Social Security program debuted nearly 90 years ago," said Surya Kolluri, Head of TIAA Institute. "This comes with tremendous opportunities, but it also comes with headwinds. Combine increased life expectancy with lower birth rates and lower productivity growth, many countries are grappling with the conundrum of how to fund this expanded retirement period with a declining worker-to-retiree ratio."

As the retirement landscape and projected lifespan of retirees continues to evolve researchers say so should the plans and policies that support them.

Researchers suggest, the best way to create a sustainable and secure retirement that addresses the challenges of longer lifespans and divergent working patterns is to develop a "hybrid" system consisting of the best elements from DB and DC plans.

The system should include:

Universal access to a high-quality retirement plan that can also provide income in retirement
A contribution rate that is high enough to fund a secure retirement
Risk sharing between participants, employers and governments to keep the system sustainable and equitable
Flexibility and portability to align with evolving working patterns
Strong fiduciary oversight, plan design and advice to help individuals make good choices

The key to building a retirement savings that will sustain retirees through the ups and downs of market fluctuations or other life challenges is to create a plan that includes diversified sources of income, including a form of guaranteed income. Adding a source of guaranteed income, such as a pension or annuity to is one of the best ways to add create an additional stream of income that individuals cannot outlive.

"In our vision for the future, all U.S. workers are automatically enrolled into a robust, cost-effective retirement plan," said Bret Hester, EVP, General Counsel and Head of Government Relations, TIAA. "Workers who don't want to choose their own investments would be defaulted into a well-designed investment solution that can easily be converted into a guaranteed income stream or other payout option at retirement."

Countries selected for the study include: the United States, the United Kingdom, Canada, Australia, the Netherlands, Singapore, and Sweden. Researchers say while each country's retirement system is unique, they all fall within two general categories: "Individual Choice" and "Collective Choice" systems. The Individual Choice (IC) countries – the US, Australia, Canada and the UK – strongly emphasize individual responsibility and choice. The Collective Choice (CC) countries – the Netherlands, Sweden, and Singapore – place more emphasis on collective risk sharing and limit individual choice.

Researchers say a successful retirement system possesses four key attributes: adequacy, sustainability, equity, and plan design. And while it is impossible to maximize each attribute simultaneously, a successful system should include a balance of the first three attributes (adequacy, sustainability, and equity), while plan design incorporates each factor to deliver positive outcomes for retirees.

"All countries included in this report have strengths and weaknesses in their retirement systems," said Brendan McCarthy, Head of Nuveen Retirement Investing. "A successful system needs to leverage the best elements of defined benefit and defined contribution plans to find a balance between the goals of adequacy, sustainability and equity."

The full report can be found at the TIAA Institute's website.

About the TIAA Institute

The TIAA Institute* is a think-tank within TIAA, conducting cutting-edge research in the areas of financial literacy and longevity literacy, lifetime income, retirement plan design and behavioral finance in the context of retirement. The Institute provides consulting services for higher education and the broader nonprofit sector. For more information, visit www.tiaainstitute.org.

About TIAA

TIAA is a leading provider of secure retirements and outcome-focused investment solutions to millions of people and thousands of institutions. It is the #1 not-for-profit retirement market provider¹, paid more than $5.1 billion in lifetime income to retired clients in 2023 and has $1.3 trillion in assets under management (as of 6/30/2024)².

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*TIAA Institute is a division of Teachers Insurance and Annuity Association of America (TIAA).


¹ As of July 21, 2022. Based on data in PLANSPONSOR's 403(b) 2022 DC Recordkeeping Survey, combined 457 and 403(b) data.
² As of June 30, 2024 assets under management across Nuveen Investments affiliates and TIAA investment management teams are $1,349 billion.
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