The Secure Choice Pension
The Secure Choice Pension*
Hank H. Kim, Executive Director and Counsel
The Secure Choice Pension (SCP) is a proposal that intends to provide retirement security for workers in the private sector through access to a defined benefit pension. Small businesses are the job creators and the engines of economic growth in the United States. Small business owners are focused on growing their businesses and expecting them to establish a defined benefit plan for their employees is both unrealistic and inefficient. Yet, at the same time, we know from polling research that these business owners are worried about retirement security for their employees and themselves and would like a new option.
The Secure Choice Pension could meet this need. The SCP is a public private partnership concept to provide retirement security for American workers, particularly those that work for small businesses, who don’t have currently a defined benefit pension. The concept is that each state (or possibly a group of states) would enact enabling legislation to establish an SCP. SCPs would be multiple employer hybrid defined benefit pension plans. It would have a board of trustees composed of state, private employer, and private employee representatives. The board would hire a chief executive officer and administrative staff to administer the SCP. The board and staff would have fiduciary duty to the SCP trust.
Participation in the Secure Choice Pension would be voluntary. Contributions to the SCP would come ideally from both employers and employees. For participating employers, administrative and fiduciary duties would be largely removed and placed upon the board of trustees. Their only real obligation and administrative task would be to make the employer’s portion of the contribution. While each SCP participant would have a notional account with minimum crediting of three percent return, all contributions to the SCP would be pooled for investment purposes to achieve economies of scale and negotiate lower fees from investment managers.
The Secure Choice Pension is a viable proposal to bring back pensions to the private sector and achieve retirement security for all American workers. It leverages the success of public sector pensions and incorporates the flexibility and portability that is needed in the private sector. It is a concept whose time is now.
*To read the full proposal and view a slide presentation about the Secure Choice Pension, visit the Retirement Security for All website at http://www.retirementsecurityforall.org/
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Did You Know?
A 401(k) plan is a retirement savings plan in which the benefit is based on contributions to an individual account and the investment return on those contributions. Typically, employees make contributions to the plan and, in many cases, employers match the employees' contributions. These plans are called defined contribution plans. In most 401(k) and other retirement savings plans, the employee is responsible for choosing among the investments offered by the plan. Other types of retirement savings plans are 403(b) and 457 plans.