PREFACE

I didn’t plan on this when I was growing up, but building retirement security in America has turned out to be my life’s mission.

From leading the 401(k) business at Fidelity Investments in the 1980s, to becoming CEO at Putnam Investments in 2008, to helping create America’s second-largest retirement services firm, Empower Retirement, in 2014, I’ve spent more than three decades working to grow and continuously improve America’s workplace savings system.

Over 30 years ago, I was there for the infancy of the 401(k). I’ve seen multiple generations of change in workplace savings since then, as 401(k)s and other defined contribution (DC) plans expanded, evolved, and matured to become Americans’ primary source of future retirement income.

I’ve had a hands-on, close-up view of the dynamic changes in workplace savings, such as digital reporting, web-based planning tools, and target date funds that align with a saver’s planned retirement date. Some of these changes, like steadily falling fees, were driven largely by market competition. Some stemmed from insights in behavioral finance, some from wise public policy, notably the Pension Protection Act of 2006, which was the first time Congress seriously treated DC plans as a central element of America’s retirement picture. Over all these years, I’ve seen amazing progress toward a most worthy goal: the chance for a dignified retirement for all.

But the job is not done. We still have miles to go to bring all working Americans from here to retirement security.

This book aims to show the way. I believe—and I hope to convince you—that we can solve America’s retirement challenge, just as we solved the challenge of polio, or getting to the moon, or creating the Internet. Better still, by doing so, Americans can begin to restore our faith in our ability to govern ourselves. And best of all, by increasing our savings rate and channeling those savings to capital markets, we can help America’s economy to grow far more robustly.

We have a great base of public and private retirement systems to build on. Our workplace savings—401(k) plans and similar payroll deduction options—already provide a vital supplement to Social Security. Together, Social Security and workplace savings blend common purpose and individual aspiration in ways that strengthen both.

Think of it this way: Social Security is an obligation that working Americans owe to each other across the generations; workplace savings is a voluntary opportunity that each of us owes to ourselves and to our families.

Given its central role in reducing the once-routine tragedy of elderly poverty, Social Security may well be America’s greatest public policy achievement of the twentieth century. It provides a life-and-death income source for low-income retirees. It is critical for middle- and upper-middle-income retirees as well. And, as we will see, it offers a serious share of income—even to the affluent, well up into the top tenth of Americans by wealth.

Both the public retirement finance system, Social Security, and the private system of workplace savings need strengthening, and the ways to do that are quite straightforward.

I say that with some confidence because the rise of workplace savings plans over the past generation, especially since the Pension Protection Act of 2006, constitutes a massive socioeconomic experiment conducted right in plain sight. And the results are in. We can clearly see how crucial Social Security is as a baseline. And we can see how retirement plan design, technology, professional guidance, and individual savings behavior combine to deliver on the most basic goal: reliably replacing preretirement income for life. That metric—retirement readiness—is what all savings systems aim to achieve.

And based on what we see in the comprehensive Lifetime Income Surveys (LIS) we do at Empower Retirement, and previously at Putnam Investments, I would argue that the three core solutions to America’s retirement savings challenge are blindingly obvious: (1) make Social Security solvent, (2) extend workplace savings options to all working Americans, and (3) make all workplace savings plans fully automatic and aim for savings of 10 percent or more. Challenge met. Problem solved.

But as George Orwell shrewdly noted, “To see what is in front of one’s nose needs a constant struggle.” And when it comes to retirement policy, that struggle is almost entirely political.

Being political, debate on retirement issues is often marred by one-dimensional analyses, ideological biases, and sheer hype. We see a constant flood of books and articles pitching the idea of a looming retirement “crisis.” Putting forward such frightening predictions has become a cottage industry. Anxiety, fear, and blame may sell, but these fear-mongering books and articles grossly exaggerate the real challenges we face.

Many critics use unfair, one-sided, and partial analyses to argue that we’re heading for a retirement finance abyss or that the 401(k) system is somehow a failure. They go on from those false premises to propose radical changes that have no chance of ever happening, such as scrapping 401(k)s in favor of a new government-run savings model. Such proposals strike me as exercises in futility. None of these schemes for total overhaul make real politically feasible reform any easier.

My view is that, despite multiple imperfections, Social Security and our evolving system of workplace savings actually complement each other’s strengths. Without conscious planning, we in America have evolved a hybrid retirement finance engine that enables workers to benefit from diversified income sources, drawing on both labor (through Social Security taxes) and capital (from investment returns to workplace savings). And despite some serious flaws, this hybrid system simply needs strengthening, not radical reworking.

We don’t need to create any major new systems or institutions. Social Security does need to be made solvent—and that’s a major challenge for politicians—but it doesn’t need to be reinvented. As for workplace savings, I say—with a hat-tip to Bill Clinton’s famous comment about America itself—“There’s nothing wrong with the 401(k) that can’t be fixed by what’s right about the 401(k).”

America’s workplace savings plans have already helped more than 80 million workers accumulate more than $7 trillion in their job-based retirement accounts and another $8 trillion in Individual Retirement Accounts (IRAs). (Most of the money in IRAs has, in fact, “rolled over” from job-based savings plans.) This vast pool of savings is one of the greatest success stories in financial history. It is the envy of nations around the world, few of which have anything like it.

Fully funded workplace savings give the United States a huge competitive advantage over nations whose pay-as-you-go retirement systems are funded only notionally, by politicians’ promises and cash flows from taxes on current workers’ wages. Such pay-as-you-go retirement systems often appear generous, but as populations age, they are proving unsustainable and crisis-prone, driving social unrest, fiscal crises, and threats of national default.

By contrast, Americans’ fully funded defined contribution savings plans both fuel and benefit from the world’s deepest, most liquid capital markets for stocks, bonds, and other securities. They stabilize the economy in downturns by enabling retirees to sustain their lifestyles and continue to consume. More important, workplace savings have democratized investing in America. Tens of millions of working Americans can look forward to living in retirement on income from dividends, interest, and capital gains.

We often forget how great an achievement this actually is. For most of human history, even in America, capital income was the exclusive privilege of a wealthy few. Today, our workplace savings plans are well along in creating a people’s capitalism that can, and should, give ownership and equity to all.

Yet, as I mentioned, far too many books and commentaries about workplace savings and retirement policy in America speak of “crisis” or “failure.” Their authors zone in on shortfalls and flaws in the system. They focus obsessively on alleged unfairness in the way savings benefits are distributed. They call for radical reforms and whole new institutions to replace a supposedly broken, irredeemable status quo.

In response, retirement services industry spokespeople and trade groups often issue monograph-length white papers, books, and reports that focus only on the strengths that I mentioned. These would-be defenders insist that our retirement savings systems are doing quite well, with little need for change.

I take a very different approach.

I do recognize the shortcomings of America’s retirement systems, both public and private. They are real and serious. I have seen them up close. I have tried over many years to get them corrected. I know that these problems are not fabricated by the system’s critics. But I also know they are eminently fixable. And I favor a practical, fruitful, effective way to go about fixing anything—including retirement savings. Alex Haley, the author of Roots, had this approach to positive change: “Find the good and praise it.” It has near-universal application.

So when it comes to retirement policy, the best way to start toward serious progress is to look honestly at what’s working well. The next step is to find ways to spread these proven best practices and structures to serve as many people as possible. Focus on what’s working. Aim to make success contagious. That approach, I believe, offers far better chances of real progress than focusing only on shortfalls and flaws. What we need are practical, incremental improvements to existing structures and institutions—not fantasies that will never pass Congress.

Imagining perfect solutions that would require massive, politically impossible change is a natural temptation. “Big” ideas are often more exciting and dramatic than small changes. But in retirement policy, as in most areas of debate, the perfect can very often be the enemy of the good.

I am proposing steady positive changes to existing systems, especially the workplace savings that most Americans already enjoy. I believe the data from our huge experiment in workplace savings already tells us what’s working, and what we need to do to fix what’s not working. Like a doctor who has discovered a vaccine that can cure a serious disease, I feel a moral obligation to spread the word about reforms and best practices that can inoculate our country against the risk of a very predictable rise in elderly poverty.

I aim to speak to the people who can actually make positive change happen in the retirement world: well-informed citizens, business owners, trade associations and labor union leaders, policy makers in the House and Senate, CEOs, entrepreneurs, and heads of human resources and benefits departments, as well as journalists and scholars who cover retirement and economic issues.

I will show specific ways our workplace savings systems can be improved on, often just by getting behind and supporting positive initiatives that are already underway. But make no mistake: These small changes would compound into huge, qualitative improvements for tens of millions of working people. Taken together, they can combine to significantly lift savings rates in America, dramatically improve all working Americans’ chances of achieving retirement security, and spur our economy into a higher gear.

These are high stakes—and positive stakes—to play for.

To understand why action to lift Americans’ saving rate is so needed, we have to begin with a look at just how seriously American retirement savings and policy are falling short today.