Accumulated Savings & Investor Protection
Mission
For many decades Americans generally prepared for their retirement years with three principal sources of income: Social Security payments, defined benefit plans "(DBs") providing fixed pension payments, and additional savings which they may have accumulated. Defined contributions plans ("DCs"), often sponsored by employers, were introduced in the 1970s to encourage voluntary savings to supplement Social Security and pension income. In recent years, this traditional approach to retirement savings has changed markedly, particularly in the private business sector, with a steady decline in pension plans and an increase in DCs as a primary – not supplementary – source of retirement income. Insufficient retirement savings has profound implications for American workers and their families, for American social policy and for the capital markets that fuel the nation's business economy.
The shift to DCs as the principal source of retirement income has impacts not adequately addressed by existing regulation or private markets. First, a growing gap exists between funds saved through DCs versus the loss of savings resulting from the elimination or freezing of pension plans. Voluntary participation in DCs places on employees the risk of saving enough to support them in their old age. Second, DCs shift the risk of investment from employers or other plan sponsors to the individual employee. While a savvy investor may be able to achieve greater returns than do institutional pension funds, those who invest unwisely or who retire during a time of market instability face insufficient savings. Third, individual investors do not enjoy access to more sophisticated investment options or the economies of scale in administration and transaction costs that institutional investors do, further diminishing savings available for retirement.
The decline of DBs also poses grave challenges to the U.S. capital markets. Over decades, pension funds have accumulated enormous pools of capital which are invested in corporate securities. This investment is a principal source of capital that fuels U.S. business. The net decline in savings portends a net diminution of U.S.-based capital for future investment.
This Working Group is investigating the impacts of the changes in retirement savings and is considering recommendations in four broad areas: improving investor opportunities; protecting investors in a changed market; providing better investor education and communication; and improving corporate accountability.Currently under development by the commission; coming soon.
Working Group Members
