In The King, the 2017 documentary about Elvis Presley, the filmmaker Eugene Jarecki interviewed residents of Tupelo, Mississippi—Elvis’s hometown. Jarecki asked one resident how she feels about America. She answered that while she loves America, the great lie of her life was that “if you work hard everything will be OK.” Unfortunately, her sentiments are shared today by far too many of our fellow citizens.
One big reason for this is the bleak future of retirement security. The average Social Security benefit is only about $1,412 per month, or $16,944 per year—very close to the unconscionably low federal individual poverty level of $12,140. Sadly, around 65 percent of retirees get half or more of their income from Social Security. Indeed, fully 36 percent of people age 65 and older receive at least 90 percent of their income from these monthly payments.
Meanwhile, the number of Americans in this age demographic keeps going up. It increased, for example, by about 33 percent over the past decade.
Recently, Democrats introduced legislation that would make Social Security solvent for the next 75 years while also making it more generous to low income beneficiaries and women. This proposal is admirable and long overdue. It’s essential that Social Security always remains an inter-generational program, and the Democratic bill does this and more.
But the reality is that Social Security alone cannot fix America’s retirement crisis. When roughly half of Americans approaching retirement age have less than $25,000 in savings, there are limits to what increasing these monthly payments can effect. Social Security has always worked best in concert with defined benefit retirement programs. Today, however, only 23 percent of workers have one. Self-funded 401(k)s and similar programs are more widespread, yet they provide very little meaningful non-employment income.
So, who is best positioned to help Congress cut this Gordian Knot?
At first, CEOs may not seem like an obvious ally for retirement insecure Americans. Their pay is now 361 times that of average workers, ensuring that—unlike most people—they will not largely rely on Social Security when they leave the workforce.
But by the same token, it’s certainly the CEOs of America’s public companies who best understand the value of defined benefit programs since, personally, almost all of them are guaranteed a very large one when they retire. And unlike most politicians, America’s business leaders clearly understand the value of financial wealth and how, at the ends of their careers, to convert it into the liquidity needed to help pay future living costs.
These same CEOs are also, with no close second, the most persuasive influence on Congress when it comes to legislation affecting workers and the economy. For the sake of maintaining strong public support for the free market, the country needs these CEOs, both alone and through groups like the Business Roundtable and the Chamber of Commerce, to now help Congress design a national retirement program.
In our view, this retirement security effort needs to have a number of overriding characteristics. It must generate enough financial wealth for every worker to realize, along with Social Security, monthly income double the individual poverty level. It must allow this financial wealth to be converted, free of tax and with low fees, into spendable income when the worker becomes eligible for Social Security. It has to provide safeguards against the vagaries of the financial markets. And it must allow middle class workers to, at death, transfer financial assets to their heirs without taxation.
There are activists who are already working to achieve related goals. For example, Kathleen Kennedy Townsend and Randi Weingarten, the former lieutenant governor of Maryland and the president of the American Federation of Teachers, respectively, want Congress to establish guaranteed retirement accounts into which employers and employees can make regular deposits.
But we need to do far more to ensure retirement security for all Americans, and business leaders are especially well positioned to advance this cause. CEOs could, by themselves, restore defined benefit plans for their workers and match, or even double match, employees’ personal contributions to their retirement savings plans. But they should go further and encourage Congress to require that medium-sized and larger employers contribute to a retirement fund on their workers’ behalves. These contributions would be at the rate of, say, 3 to 4 percent of each worker’s annual pre-overtime salary.
America’s business leaders should also lobby Congress to enable a retirement (or “stakeholder”) account for every American, funded by voluntary savings plus a modest federal government match. These accounts, as with current state plans, would be professionally managed at much lower costs than the mutual fund investments typically found in 401(k) plans.
Finally, CEOs should ask Congress to entirely eliminate the cap on wages subject to Social Security payroll taxes, which is currently set at $132,900 of income. The government could then tax the billions of dollars in wealthy Americans’ earnings which are currently untouched. According to calculations by the Committee for a Responsible Federal Budget, this single change would close more than half of any future funding gap in the Social Security program. The individual amounts of post-retirement payments could then be materially increased at the decision of the Commissioner. The balance of the future gap would be entirely closed, plus some, with much lower (or ideally no) benefits for the well-off, and with retirement age indexed to life expectancy.
No American should ever again find out that “working hard” doesn’t make “everything OK,” whether she or he is in Tupelo, Topeka, or Tacoma. The effort to achieve this starts on Main Street with the middle class, and it will finish, we hope, in the halls of Congress. But common lobbying won’t be enough. To preserve free markets from any backlash over growing retirement instability, the nation’s CEOs need to coordinate and commit to solutions such as these.