Retirement Savings Plan

From:James@Blackstone.com To: john.podesta@gmail.com CC: teresa.ghilarducci@gmail.com Date: 2016-01-11 20:43 Subject: Retirement Savings Plan

John, Teresa Ghilarducci passed along your interest in our Retirement Savings Plan. We've spent considerable time researching and thinking about this issue and believe we have some ideas that offer an immediate, sustainable, low cost and politically viable solution to help tackle a looming crisis. If we don't act, our country will see poverty rates and downward mobility of middle class elderly people not seen since the great depression. It is projected that 16 million retirees will be living in or near poverty by 2022 and 25 million by 2050. If we do nothing, 39 percent of all older workers will be poor or near poor at age 65, so the need is real and imminent. The strain this newly poor population will place on our social safety net will devastate federal, state and local budgets for decades. Our goal was to devise a politically feasible solution that addresses the problem now without worsening the national deficit. We do not believe the problem can be solved by making Social Security better funded and/or adding a higher minimum benefits for several reasons. First, expanding Social Security would help to take care of the very poorest members of society - but expanding Social Security doesn't help middle class people very much. Social Security was designed as a safety net for those facing poverty in old age. It was never meant to be a vehicle to guarantee a middle class retirement. Social Security is an entitlement, where savings are redistributed based on income. This is a worthy goal in and of itself, but not the focus of our plan. In contrast to Social Security, with a Guaranteed Retirement Account, you get back what you put in, plus investment earnings. These accounts build on the money people put into their own accounts, giving back even more. In other words, raising SS payments above the poverty line isn't the same as guaranteeing widespread retirement security. Second, unlike Social Security, this is actual cash in each person's individually owned retirement savings account. Because it is real capital that can be invested well (like a DB plan), the higher returns (6-8% per year) finance a lot of the future needs without requiring larger contributions or adding to the deficit in the future. You don't get investment returns filling a lot of the funding gap with Social Security since it is unfunded. Third, increasing Social Security would mean adding to FICA taxes. This plan is easier on workers because half comes from employers (offsetting other costs), so only 1.5% from workers. And for the 50% of Americans below median income, that "cost" is offset by a federal tax credit. This tax credit is deficit neutral because we are doing away with the 401k deductions, which benefit primarily the affluent. Finally, Social Security is such a fraught issue with people so dug in, we worried that opening it up for fundamental change was not implementable from a pragmatic standpoint. So we decided to build on Social Security as is. With our plan, the Guaranteed Retirement Accounts are individually owned and controlled and will not require an additional or larger entitlements which would have obvious appeal to the other side of the aisle. We looked beyond Social Security and propose individually funded add-on accounts. In this way, all Americans can save more and invest more effectively over a longer period of time to support their retirement. All Americans need well-managed, diversified retirement accounts they can contribute to for their entire career. We are happy to talk these through with you at any point, but here are the basic principles: Universal Coverage: Every American who works without a pension plan would automatically have their own Guaranteed Retirement Account (supplemental to Social Security and any individual retirement savings). Individuals accumulate funds in their own accounts and retain full control. Upon retirement, they receive guaranteed payments for their lifetime. Cost Neutral for Workers AND Taxpayers: Savings are mandatory but cost neutral for almost all Americans who earn below median income. We've calculated that workers and their employers need to contribute an annual 3% to close the retirement savings gap (1.5% each). And a tax credit to offset this contribution for families at or below the median income will be paid for by removing existing deductions that overwhelmingly favor the wealthy, making the plan deficit neutral. Redistributes Government Support to Those Who Need It Most: The refundable tax credit is a positive change from the current subsidies that favor high earners. In 2014, federal and state governments spent $120 billion to subsidize workers' pensions. But these tax benefits are regressive and do little to benefit workers most at risk. In 2014, the most affluent Americans received over 79% of the benefit from retirement tax deductions. The Retirement Savings Plan remedies that by redeploying existing government support from wealthy retirees to those who need it most. Individually Owned, Effectively Invested: Unlike Social Security, workers maintain ownership over their account through a transparent investment process. Their assets will be pooled and invested in long-term, low-fee strategies that generate higher returns (6-8% per year) than current 401(k) plans, building on the amount invested and giving back even more. Guaranteed Lifetime Income: Though privately managed, funds will have a government guaranteed return of 2%. Upon retiring, savings will be returned through annuitized payments. This guarantees a continuous standard of living for as long as retirees live. Federal Plan; Nationally Mandated: A federal program will provide coordinated collection, record-keeping and payments, as well as better negotiated fees for asset management. And by integrating the payment system seamlessly into Social Security's existing infrastructure, we avoid the need for additional bureaucracy and create efficiencies and savings over time. In addition, only through a Federal plan can we create the tax credit that mitigates the cost for families below median income by redeploying 401k deductions. Incents Desiring Americans to Work Longer: Workers decide when they retire and begin collecting their savings. This will help Americans to work longer if they wish, which has proven to have significant economic (as well as mental and physical) benefits. Bi-Partisan Appeal: The GRA model avoids larger entitlement conversations by keeping accounts under individual's control and redistributing savings based on the amount invested, not based on income. And it does so without impacting the budget or raising taxes. From the many conversations we've had with members of Congress from both sides of the aisle, our sense is that it's politically viable. This plan intentionally does not touch or attempt to alter Social Security, address underemployment, mitigate the wealth disparity, or raise stagnant middle class incomes. However, it provides an actionable solution to an impending crisis. And this solution will have resounding impact on more than one half of all working Americans. It will relieve our welfare programs from undue strain and free up revenue for other pressing needs. This will all be fully fleshed out in a white paper we are releasing in a few weeks. We are happy to make time available to discuss these ideas at your convenience. Our recent NYT op-ed: http://www.nytimes.com/2016/01/02/opinion/a-smarterplan-to-make-retirement-savings-last.html Tony & Teresa ________________________________ This e-mail communication is intended only for the addressee(s) named above and any others who have been specifically authorized to receive it and may contain information that is privileged, confidential or otherwise protected from disclosure. Please refer to www.blackstone.com/email-disclaimer<http://www.blackstone.com/email-disclaimer> for important disclosures regarding this electronic communication, including information if you are not the intended recipient of this communication.