Putnam Investments announced today that its President and Chief
Executive Officer Robert L. Reynolds will outline a sweeping
retirement reform agenda in Washington, D.C. this afternoon before
an audience of the nation�s 401(k) industry leaders, retirement
plan sponsors and mutual fund executives. Reynolds will call on
employers, plan providers, regulators, and Congress itself to act
now to solve the nation�s retirement savings crisis, which was made
more severe and urgent by the securities market declines of
2008.
Recognizing the declining role of traditional pension plans and
Social Security, Reynolds, a 25-year retirement industry veteran
who was recently named one of the most influential people in the
defined-contribution retirement business*, will call for dramatic
expansion and strengthening of 401(k)s and other
defined-contribution savings plans to reliably deliver lifelong
income to workers. Among the steps Reynolds will call for:
Oversight/Regulation
- Creating a new national
insurance charter, a national insurance regulator, and a fund to
back up lifetime income guarantees from insurers. The fund
would be similar to that which the Federal Deposit Insurance
Corporation maintains to protect bank deposits.
- Curbing the volatility of
highly popular lifecycle funds by limiting the share of equity
investments in the mature phase of lifecycle funds for people
nearing retirement or in retirement. Some lifecycle funds, intended
for those nearing or in retirement, had more than half of their
assets in equity securities in 2008, Reynolds noted, worsening the
impact of last year�s declines on those who needed to draw on their
nest eggs for current income.
- Mandating that retirement plan
advisors and providers make full, transparent disclosure of
fees, risks, and responsibilities in plain English, without
burdening participants with irrelevant details.
- Providing clear, strong legal
protection to employers who offer advice and guidance and to
those who include lifetime income guarantee products in their
savings plans.
Plan Design
- Mandating automatic
enrollment, savings escalation, and guidance to qualified default
options for all employer-sponsored retirement savings
plans.
- Requiring that workplace savings
plans build in an option to secure a �retirement paycheck,�
enabling any participant to choose an assured lifetime income
option in the form of annuities or other insured, non-annuity
income streams.
- Ensuring that all workplace
savers have access to the advice and guidance they need
for asset allocation, retirement planning, and lifetime income
strategies.
- Recognizing the growing
importance of alternative risk-mitigating investment options and
strategies (e.g., longevity insurance, absolute return).
Tax Incentives
- Extending tax credits to
employers who voluntarily �match� worker savings contributions
since these employers are helping to meet a national savings
challenge. Workers� own contributions are already
tax-advantaged.
- Providing additional tax
incentives to employees who invest in protected lifetime income
products. Since converting life savings into lifelong income is
even more challenging than accumulating a nest egg in the first
place, the decision to give up some control of assets should be
rewarded.
�If we draw the right lessons from the tough markets we�ve been
passing through,� Reynolds said, �we can create a 21st century
workplace savings system that will improve participants� results,
lower volatility, and reliably deliver a major share of income for
life.�
Reynolds also called on policymakers and businesses to address
the plight of the more than 75 million Americans, roughly half of
the total workforce, who have no access to any workplace retirement
plan. Even as the existing workplace savings system is upgraded,
policymakers must find creative, cost-effective ways to enable
small or struggling business to offer automatic, simple and
low-cost savings options to their workers, according to Reynolds.
The greatest beneficiaries of such extended workplace savings, he
noted, would be younger, lower-income workers whose employers find
the cost and complexity of establishing conventional
defined-contribution plans too onerous.
�The multi-trillion dollar wave of wealth destruction that
struck America�s markets in 2008 inflicted serious losses for
retirement savings,� said Reynolds. �We need to act now to reboot
the system and boost retirement savings substantially. If we don�t,
millions of future retirees could face shortfalls in the income
they need for everyday essentials such as food, medicine, and
housing.
�The workplace is the best place to tackle America�s retirement
challenge and develop a new generation of more robust, more
resilient 401(k) plans that would provide millions of Americans
with a reliable retirement paycheck,� he added.
Reynolds explained that the retirement crisis has its roots in
several factors, including the impending retirement of 76 million
baby boomers and the declining capacity of Social Security and
traditional defined-benefit pensions and to replace the incomes
that future retirees earned while on the job.
Introduced in the early 1980s, the first generation of 401(k)
plans, which Reynolds called �Workplace Savings 1.0�, was
enormously successful in spurring millions of workers to save
trillions of dollars. By 2006, 62 million Americans (roughly half
the workforce) had 401(k) plans, and had saved $4.2 trillion
towards retirement in all defined contribution plans combined. By
the turn of the 21st century, though, participation and savings
rates hit a ceiling, because the purely voluntary, multi-choice
design meant that workers had to �opt in� to participate and then
make multiple investment choices from a wide array of options from
which many were ill-prepared to choose.
The Pension Protection Act of 2006 introduced what Reynolds
called �Workplace Savings 2.0.� This new model aimed to help
retirement plans break through ceilings on participation, and
savings rates by enhancing automatic enrollment of workers into
401(k) plans, escalating savings, and providing legal protection
for employers offering lifecycle and balanced investment funds as
�default� investment choices. But while the industry rapidly moved
to adopt this much improved savings model, this fast-emerging
second generation of 401(k) plans was sideswiped by the market
shocks of 2008, which resulted in a one-year, 22 percent drop in
401(k) plan assets.
�Revamping the defined contribution plan system is too big a
challenge for any single firm or sector of the financial industry,�
said Reynolds. �The next generation of plan design and policy,
which I call �Workplace Savings 3.0�, will require new alliances
among mutual fund companies, plan sponsors, insurers, financial
advisors and policymakers in Washington to build on the progress
made through the Pension Protection Act.
�Together, we can continue evolving from a model that made it
somewhat difficult to succeed to well structured plans that make it
very, very hard to fail. I am absolutely convinced that the sorts
of changes being proposed here, led by private innovation and
backed by wise public policy, can create 21st-century workplace
savings plans that provide a much more resilient, reliable
foundation for America�s entire retirement system.�
NOTE: More information is available at
www.theretirementsavingschallenge.com
About Putnam Investments
Founded in 1937, Putnam Investments is a leading global money
management firm with over 70 years of investment experience. At the
end of April 2009, Putnam had $99 billion in assets under
management. Putnam has offices in Boston, London, Tokyo, Singapore,
and Sydney. For more information, go to www.putnam.com.
For any Putnam fund, request a prospectus from your financial
representative or by calling Putnam at 1-800-225-1581. The
prospectus includes investment objectives, risks, fees, expenses,
and other information that you should read and consider carefully
before investing.
* 401(k)Wire.com, January, 2009.
Putnam mutual funds are distributed by Putnam Retail
Management.
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