Reality Testing for Pension Reform
The US private pension system is at a crossroads. Its future direction is now under intense scrutiny by Congress, which has recently considered two very different proposals for change, each containing elements likely to be on the national agenda for some time. One approach embodies a traditional approach to pension reform, with an omnibus statute that tinkers with almost every aspect of the private pension system to make incremental changes. A second seeks to bring radical change and simplification, with sweeping consolidation of the number and types of defined contribution plans. This chapter evaluates these two approaches, one for incremental change, the other for structural reform, and then considers an alternative. Our analysis focuses on the nuts-and-bolts of the private pension system, the plans that comprise it, and the rules that govern them that have accumulated over the past 60 years. Our thesis is that an analysis of the architecture and machinery of the private pension system can teach us a great deal about how to redesign the private pension system to meet retirement income challenges to come.