Uncle Sam Wants You to Save

Uncle Sam has a message about retirement he wants American taxpayers to hear: Don't count on me to pay for everything.

In other words, Social Security alone, even if revitalized in the next several years, won't provide retirees with enough cash for secure golden years. Workers need to save on their own for retirement - and they need to start earlier, and put aside more of their income, than they typically have in the past.

President Clinton, as well as congressional leaders, will make this general point at a two-day National Summit on Retirement Savings beginning June 4 in Washington. The meeting promises to be just the sort of chin wag about serious issues that the president has always appeared to love.

The fact that this subject is fit for a chief executive's time could also be seen as more evidence of the decline of US paternalism. Washington's approach to social problems now emphasizes personal responsibility as much as, if not more than, entitlement to benefits.

The Nanny State that conservatives used to decry appears largely gone. In its place may be something some observers call The Daddy State: a government eager to teach you what's good for you.

"No matter what we do with the Social Security system, Americans should be saving more for their own retirement," said President Clinton earlier this spring.

Today many Americans still depend on the federal government for much of their retirement income. Social Security is the major source of money for 80 percent of retired US residents.

But experts point out that the system, as designed, was intended to ensure that the elderly had a minimum amount of income to keep them out of poverty. It was never meant to provide the same standard of living enjoyed during working years.

A retiree who leaves the work force this year with final annual earnings of $52,000 will receive a Social Security benefit equal to only about 30 percent of pre-retirement pay, for example.

At the same time, coverage from traditional private pensions has dropped precipitously. The number of these so-called "defined benefit" plans, which pay out a fixed monthly amount, has declined by half, to around 53,000.

The number of "defined contribution" plans has soared. These plans, such as 401(k) accounts, call for employees to save a fixed amount, often with employer-provided supplements.

Such accounts can provide employees with valuable savings that accumulates relatively quickly, while not burdening employers with future pension liabilities.

But many employers, particularly small businesses, find administration costs burdensome. Fully one-third of workers who can participate in defined contribution plans don't bother. Perhaps most surprisingly, many workers loot these retirement accounts long before they stop working.

In 1996, some 60 percent of distributions from defined contribution plans made to people changing jobs were not rolled into other retirement accounts. They were spent - despite tax and penalty charges.

"Many people seem almost willfully ignorant of what they must do to make their dreams of retirement a reality," said Dallas Salisbury, head of the Employee Benefit Research Institute, in congressional testimony last month.

Washington has taken some legislative and policy initiatives in recent years to try to deal with the perceived low rate of savings for seniorhood. Last year's tax bill created a new kind of Individual Retirement Account - the Roth IRA - which allows many workers a financially attractive way to accumulate savings tax-free. In 1996 Congress passed legislation legalizing retirement plans with fewer administrative requirements for businesses with 100 employees or less.

But the current emphasis is largely on education. The Labor Department, in conjunction with a number of private groups, is pushing a Retirement Education Savings Campaign. This week's National Summit on Retirement Savings, mandated by congressional legislation, will focus on the current state of retirement savings and education, and what can be done to improve it.

For instance, "one of the biggest barriers that keeps many small employers from offering plans is the fact that many employees do not consider retirement benefits very important," concludes background material prepared for the summit.

But some experts argue that the government has larger responsibilities than just preparation of materials to convince younger workers that they need to divert some of their badly needed income into 401(k) plans.

Private retirement plans have some chronic shortcomings of their own, says Merton Bernsten, a law professor at Washington University in St. Louis.

Many companies require employees to invest 401(k) money in employer stock, for instance. Vesting requirements mean short-service employees sometimes never qualify for a plan at all. Employer-based benefits often are not adjusted for inflation, and sometimes they do not provide benefits to surviving spouses.

"As people learn more about the deficiencies of employment-based plans, the more they will realize the urgency of preserving Social Security," says Bernstein.