What’s Ahead for the Future of Our Retirement System?

August 14, 2012

Over the next few weeks, I will be providing a summary of some of my favorite sessions I had the pleasure of attending during this year’s 31st Annual ISCEBS Employee Benefits Symposium.  The 3 day event in August was held in San Francisco and brought together hundreds of credentialed benefits and compensation professionals from both the U.S. and Canada.

Day 1 kicked off with a general assembly on The Future of Retirement, presented by the Honorable David M. Walker.  He provided some chilling insight into the potential problems our nation faces and some possible solutions the government may enact to save our troubled retirement system.  Walker certainly has the inside track to these forecasts since he has served as the seventh Comptroller General of the United States and as CEO of the U.S. Government Accountability Office.  He is now the founder and CEO of the Comeback America Initiative, which promotes fiscal responsibility and sustainability on a nonpartisan basis.

I wasn’t aware that next year is the 100th anniversary of 3 key federal government initiatives:  the federal income tax, the Federal Reserve, and the direct election of our state Senators – which were all put in place back in 1913.  This is important because in just 100 years, the growth of federal government spending as part of our GDP has gone from a mere 3% to a current level of 24%, and that’s estimated to go up to a high of about 37% by 2040.  Much of that is mandatory spending, based on the promises of Medicare, Medicaid, Social Security, and federal civilian and military pensions.  Our federal financial hole is getting deeper and deeper, which is leading to a growing foreign dependency on our public debt.   We all hear how bad it is in Greece, which is ranked 36th in last place for fiscal solvency.  What we don’t hear very often is that the U.S. is ranked 28th!  Australia, New Zealand and Canada are a few of the top ranked countries, and that is because those governments made some hard decisions and tough changes back in the 1990’s to stem their problems with their own retirement systems.

Even worse are the burdens being faced by bloated state retirement systems, with only six states reporting a fiscal surplus:  Alaska, Wyoming, North Dakota, Utah, Nebraska, and South Dakota. Unfortunately, my home state of PA ranked 29th on the list.

Walker revealed what he believes to be the 4 most common myths on how to solve our nation’s fiscal problems:

  • We can grow our way out
  • We can inflate our way out
  • We can tax our way out
  • We can cut our way out

However, to really provide fiscal reform, he argued it is going to take a combination of spending cuts, tax increases, and a restructuring of many of our retirement entitlement programs.  A few of the solutions Walker alluded to that we may see in the near future include a tax on the value of employer-sponsored health coverage, elimination of many itemized tax deductions for things like home mortgage interest, an increase of the tax on dividends and capital gains, means testing for Social Security benefits, and an increase of 2 to 3 years of both the early and normal ages of Social Security benefits.

We need to stress the importance to our employees of saving even more now to make up for lower benefits and higher taxes in the future, based on what may be changing regarding the future of retirement benefits, so if you’d like to learn more about what Walker shared, visit his website at www.KeepingAmericaGreat.org, where you can take a quiz on your own Fiscal IQ.