NEW YORK (TheStreet) -- It's no secret that most Americans are worried about having enough money for retirement. But pension experts are coming up with possible solutions to provide financial security many workers fear they lack.
Two pension experts at the Center for American Progress -- a left-leaning public policy and advocacy organization -- have come up with a proposal that combines the best aspects of a 401(k) plan and old-fashioned pension plans and gives retirees a steady income for life. And a former pension regulator has a simpler proposal to preserve the traditional pension plans that currently cover 75 million active workers and retirees.
The reason workers are concerned is that a shrinking percentage of them has a traditional pension, which guarantees income for life. Instead, more than half of workers at medium and large companies have 401(k) plans, so retirement income depends on how markets perform. Market crashes in 2001 and 2008 stoked fears that the returns will fall short.
Since many workers didn't work long enough at one company for their pensions to vest, the shift to 401(k) plans "means more get something, but fewer get enough," says Employee Benefit Research Institute President Dallas Salisbury. As a result, protecting retirees "is one of the great social problems of the next generation," says Josh Gotbaum, a former director of the Pension Benefit Guaranty Corporation.
Pension experts at the Center for American Progress think they have a solution. Under the Secure, Accessible, Flexible, and Efficient Retirement Plan devised by Rowland Davis and David Madland, new employees would automatically enroll in a plan run by a nonprofit and get a tax break for investing, as they do for 401(k)s.
The money managers would put the funds from many workers into a pool, like a traditional pension. At retirement, workers would get an annuity that would provide money for life.
A worker's account would get a maximum credit each year, called a collar, of 8% and a guaranteed minimum return of 0%. Market returns above the collar would go into a reserve fund to offset years when the return falls below 0%. When the reserve fund is overfunded, worker accounts would be credited with bonuses.
Davis and Madland used historical data to compare the results for a 401(k) and their plan for a worker who earns the median salary, contributes 12% of income into a retirement plan for 37 years, and retires at age 67. The 401(k) replaces 34.7% of pre-retirement income, while their plan replaces up to 87.1%, depending on bonuses.
With the Davis-Madland plan, workers would not have to worry about market performance or an employer that dumps its pension plan or provides a lump-sum payment -- as many companies now do -- instead of monthly lifetime benefits. And the plan imposes no financial or fiduciary burden on companies, the main reasons employers have shut down pension plans. This approach "tackles the basic problem we face in providing a secure retirement for people," says Madland, the Center's managing director for economic policy and director of the American Worker Project.
Senate Health, Education, Labor, and Pensions (HELP) Committee Chairman Tom Harkin (D-Iowa) has introduced legislation creating a similar investment -- the USA Retirement Fund -- and has held hearings on it.
These solutions could have bipartisan appeal. Democrats could claim credit for shoring up the worker safety net and providing a tax break. The GOP could claim credit for backing a solution that supports worker self-reliance, though some Republicans may object to mandatory enrollment and a tax break rather than lower rates.
Companies are concerned that new non-profits would run the plans and a whole new body of law would have to develop around the plans, similar to what evolved around the Employee Retirement Income Security Act.
"There are gaps in coverage that need to be addressed," concedes Lynn Dudley, Senior Vice President, Global Retirement and Compensation Policy for the American Benefits Council, an employer group. "But there are a lot of questions that need to be answered. The solution may not be a one-size-fits-all."
Gotbaum, who is now at the Brookings Institution, has a less complex solution, at least for the 75 million active workers and retirees who still have traditional pension plans. He would simply allow workers to make tax deductible contributions to those plans, just as they can make them to 401(k)s. That way companies would not have to shoulder the entire cost, and workers would get more certainty about retirement income.
"I don't believe the US government intended to undermine retirement security, but it has stacked the deck against plans that offer retirement security in favor of savings plans," Gotbaum says. "The Federal government should not discriminate for or against any type of plan and certainly not discriminate against plans that offer lifetime income."
If Congress can get over its polarization for a moment, it might begin to address pensions seriously and avert a crisis for the elderly.
To be sure, that would be a triumph of hope over recent experience. But if good sense ever is to prevail, this issue is a good place to start.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.