The Aging of the Boomers and the Coming Crisis in America's Changing Retirement and Elder Care Systems

Abstract:     
An aging population, coupled with a trend toward shifting risk from employers to individual employees, has created a variety of issues within America's retirement system. In searching for a solution to the coming crisis, this Article steps back to analyze the retirement system as a whole. Instead of examining each type of retirement plan individually, the author argues for fundamental change within the entire retirement framework. Because the policy behind ERISA - creating tax benefits to reward long-term employment - has changed, America needs a new comprehensive retirement policy that accounts for the crisis facing the current pension system. The author contends that rather than fashioning individual solutions for each problem, the situation requires a broad solution governed by an overarching theme. Professor Drummonds calls for a "new ERISA," integrating all of the disparate parts of America's emerging retirement system. He argues the social security system should be maintained as a social, not retirement program, guaranteeing every worker some subsistence level income against the vicissitudes of life. He calls for the conversion and phasing out of defined benefit plans in the private and public sector toward the defined contribution/individual account model as fairer to the children and grandchildren of the Boomer generation. Professor Drummonds believes the individual account model is less subject to the funding and moral hazard problems seen pervasively in the defined benefit plans. To address the underfunding and non-participation in defined contribution plans, Professor Drummonds would mandate that employers offer such plans, with opt-out features and diversified default portfolios, and a mandatory employer match of voluntary employee contributions up to 6%. He would eliminate less than market premium rates for termination insurance in remaining defined benefit plans and require a standardized and accurate accounting system for those plans.

Keywords: retirement, ERISA, defined benefit plan, social security, public employee pensions, Oregon Public Employees Retirement System

Accepted Paper Series