Retirement experts and policymakers from the U.S. and the Netherlands convened in Washington, D.C. earlier this summer at an event for a dialogue on each country's retirement policy experience. 

At a recent Heritage Foundation event, we learned that the American and Dutch systems are quite different, to be sure.

The U.S. has a basic Social Security benefit for most workers, while private sector employers have trended away from pensions toward individual 401(k)-type accounts in recent years.  In contrast, the Dutch system is a compulsory, universal defined benefit pension plan for all workers that is considered by many experts to be one of the strongest retirement systems in the world.  

Citizens of each country seem to view their retirement systems differently.  The Dutch system covers an impressive 97% of the population.  The system also is well funded.  Yet, representatives from the Netherlands voiced concern that the system dipped to just a 95% funding level in 2007. 

Conference speakers from the U.S. noted that many Americans will face large retirement risks in the near future because many lack pensions, access to any employer based retirement plan, and/or income outside of Social Security.  Also discussed was the disconcerting fact that too many Americans seem unaware and unconcerned about their precarious retirement prospects.

Also alarming, attendees noted that many in the U.S. who actively save for retirement still are in danger of falling short.  To give just one example of the breadth of the problem, Theo Nijman with Tilburg University and Netspar discussed how inflation can drastically erode retirement income over time.  Yet, many retirement income products do not offer any type of cost of living adjustment feature to help protect retiree money against inflation.  

In a keynote speech, J. Mark Iwry, deputy assistant Treasury secretary for retirement and health policy, explained how the automatic individual retirement accounts (auto IRAs) could help address the deterioration of retirement readiness. A joint Brookings Institute and Heritage Foundation proposal, auto IRAs are designed to increase personal savings participation more broadly through automatic enrollment and savings escalation while also extending accessibility of retirement plans to small businesses.  

Event speakers generally agreed that more American workers should have access to quality retirement savings vehicles, and that those workers with workplace retirement plans should be saving more for retirement.  While the auto IRA proposal may be the first step in making these goals a reality, there was agreement that Americans will still fall short. Iwry pointed out that the Obama administration believes that auto IRA is a big step in the right direction, but it is not a final solution to the retirement savings deficit.

Let’s hope that our policymakers continue to look to these and other solutions to rebuild the road to retirement for all Americans.       

Posted on July 29, 2010 by Daniel Alvarado, NIRS Intern