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138 Monthly Lab. Rev. 1 (2015)

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Monthly Labor Review


JANUARY 2015

Better retirement planning


Pension Policy: The Search for Better Solutions. By John A. Turner, Kalamazoo, MI, WE. Upjohn
Institute for Employment Research, 2010, 243 pp., $40/cloth; $20/paperback.
   The U.S. pension system needs fixing.
   This is author John A. Turner's introductory statement, and it sets the tone for the rest of Pension
Policy: The Search for Better Solutions. In Turner's opinion, U.S. pension policy is poor by
international standards as measured by a number of metrics. Turner wrote this book for the express
purpose of proposing what he feels are much needed fixes to our current pension policy.
   Turner is eminently qualified to write on the subject. Turner received his doctorate from the
University of Chicago in 1977, taught as an adjunct lecturer in economics at George Washington
University and Georgetown University, and was a Fulbright Senior Scholar in France. He has published
more than 100 articles on pension and social security policy, authored or edited 14 books, and consulted
and presented papers in more than 30 countries. His articles have been translated into eight languages.
He is currently president of the Pension Policy Center, which provides retirement income planning,
financial advice, and analysis and consulting on pension policy, social security policy, and policy
concerning the labor market for older workers.
   Turner starts his book by defining and explaining the two major types of benefit pension plans
currently available to Americans: defined benefit plans and defined contribution plans. In a defined
benefit pension plan, the employer or sponsor promises specified monthly payments upon retirement
that are predetermined by a formula based on the employee's age, tenure of service, and earnings
history. Because recipients know that the exact dollar amount they receive in regular payments for the
rest of their lives are guaranteed by their employer, risk is virtually nonexistent. Turner notes that, when
the Employee Retirement Income Security Act (ERISA) passed in 1974, almost all pensions were
defined benefit plans.
   In a defined contribution benefit plan, the employer (and sometimes the employee and sometimes
both) make regular contributions to the employee's retirement account. Pension benefits are based on
the amounts credited to that account, plus any investment earnings on the money in the account. Only
employer contributions to the account are guaranteed, not benefits, which are subject to fluctuation
based on the types of investments chosen. Risk is thus shifted from employers, who would be obligated
to make set lifetime benefit payments under a defined benefit plan regardless of how well or poorly the
money is invested, to employees, whose retirement benefits now depend on the type of investments
they choose to make. Defined contribution plans predominate today.
   One suggestion Turner has for expanding coverage and adjusting for increasing life expectancy is a
process he calls mandating (issuing a government directive ordering employers to provide employees a
retirement plan). A primary benefit of mandating is that it would enable almost universal coverage, but
there are also a couple of negatives. First, it is unclear how foreign direct investment would be affected;
for example, would mandates preclude foreign companies from creating subsidiaries that would provide
employment opportunities in the United States? This would seem to be a very real possibility. Second,
U.S. employers generally haven't been keen on mandates in the past. Because voluntary participation is
also dependent on a willful decision by the employee, Turner proposes making enrollment mandatory
but encouraging gradual, capped increases in the amount the employee contributes. The tables he


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