Followers of workplace-based pensions have noted some positive, but also some negative, trends of late. In any year, about half the private sector workforce has been covered by employer pensions for three decades (Employee Benefit Research Institute, 2011a and 2011b), in spite of numerous legislative attempts to enhance coverage. Low-wage workers who change jobs often or work in small firms often lack the option to save in DC plans, giving rise to government proposals to expand coverage (Iwry, 2004). Nevertheless, several policy reforms have increased employer adoption of auto-enrollment and default provisions that boost DC plan participation and contributions. Employers who offer retirement plan contribution and investment defaults generally see higher pension saving rates (only partly offset by reductions in voluntary nonpension saving; Card and Ransom, 2011). As noted above, DB plans are suffering from the market downturn and persistent underfunding.8 Regulatory burdens are widely believed to have restricted the growth and deepening of the employer-sponsored pension marketplace (Perun and Steuerle, 2006). In light of the budget stringencies discussed above, it would seem difficult to enhance tax inducements to boost pension saving. Nonetheless, if workplace retirement plans are to play a continued key role in helping the working-age population prepare for retirement, it will be critical for employers to adopt and support well-designed retirement plans that encourage workers to save adequately in diversified portfolios, which can maximize the likelihood of providing a secure retirement.
Housing Wealth Risk
In many nations, people have often considered housing as a safe asset, and U.S. baby boomers are no exception; they have relied more on housing equity for retirement security than previous generations (Lusardi and Mitchell, 2007a). Unfortunately, the bursting of the housing price bubble and ongoing housing market slump have eroded the large pool of retirement wealth that had been held in the form of home equity. Both the illiquidity of housing assets and the volatility of house prices can also affect the adequacy of retirement resources when retirees plan to lean heavily on housing wealth as a source of consumption. Real net household nonfinancial wealth experienced an approximately 26 percent decline since its peak in 2006. Such an extraordinary loss of wealth affects current and future retirees’ ability
8DB plans are significantly subsidized currently by underpriced insurance premiums, and they are likely to face premium increases (as proposed in the President’s 2012 budget), which may discourage employers from offering DB plans in the future. The government reinsurance entity, the Pension Benefit Guaranty Corporation, is itself rather seriously underfunded (see Pension Benefit Guaranty Corporation, 2011).