- The Washington Times - Thursday, September 27, 2007


Political rhetoric and a lack of legislative urgency are the blemish cream of American politics: They cover up a number of surface issues, but they don’t fix the underlying problem. Yet some smart analysts — recognizing the snarls in the legislative process — are looking at non-governmental solutions to some vexing issues.

Retirement security offers a case in point. Democrats knifed President Bush’s Social Security reform proposal with daggers of demagoguery in 2005. Thereafter it died a quick death from the wounds of privatization demagoguery and a sense that insolvency was not imminent. The smart political approach, according to Democrats, was policy procrastination — they could deny the White House a victory without paying any political costs. After all, seniors would still get a Social Security check for the foreseeable future, so what’s the rush? The mini-drama played out again this week. The administration issued a report on Monday highlighting the need for Social Security reform to avert fiscal disaster. But Senate Majority Leader Harry Reid of Nevada immediately denounced the warnings as another reminder of the White House’s goal to “privatize” the system. Translation: Do nothing.

But there is a pattern to the punting. And when it’s done on tough issues primarily to deny one side or the other a political “win,” voters start to throw the yellow flag. If Congress is nothing more than a government-funded debating society, it’s no wonder public approval of the institution has reached an all-time low.

Yet the gridlock can have some positive consequences. For one, the federal government stalemating over yet another Washington-centric solution is not all bad. States, for example, are starting to perform some innovative experimentation in the area of health care in response to congressional paralysis. Moreover, policy analysts are beginning to formulate some creative ideas about retirement security that employers could implement without legislative approval — reforms that will boost the savings rate and provide an extra cushion to a vulnerable Social Security system about to get hit by a Baby Boom demographic tsunami.

A recent poll conducted for the Rockefeller Foundation by Yankelovich Inc. finds that “having enough money saved for retirement” tops the list of Americans’ economic anxieties. The poll also finds that 66 percent of those not currently retired believe that for them, Social Security benefits will either not be available at all or will be available at a reduced level. Boosting other sources of retirement income would help reduce economic anxiety. But how? David Laibson, an economics professor at Harvard, has an intriguing idea that doesn’t require action by a gridlocked, partisan Congress. His recently published work demonstrates that incentives such as boosting employer matches in 401(k) plans or even more employee education don’t do the trick in terms of boosting savings. In one intriguing example, Mr. Laibson shows that 100 percent of those attending an educational seminar on the benefits of signing up for a company’s retirement plan agreed to do so. But when he followed up several months later, only 14 percent actually had enrolled (not very different from the control group that received no education).

What works, he finds, draws upon a basic rule of behavioral economics: Make it as easy as possible for employees to participate. Automatic enrollment is one tool that generates significantly higher participation. A simple change in company policy — automatically enrolling people for the 401(k) and then giving them the choice to “opt-out” (as opposed to requiring them to opt-in) — has a dramatic impact on participation. Mr. Laibson finds that companies implementing automatic enrollment plans can boost their participation to about 80 percent. Once people are in the plan, they are not only satisfied, but make the necessary adjustments to their disposable income.

Mr. Laibson argues that if enough companies adjusted their 401(k) participation policies (for example, instituting automatic enrollment into a retirement plan with an opt-out), it could go a long way towards ameliorating the current savings crisis in America. It would also help assuage worker fears about accumulating enough wealth for retirement.

Ideas like this hold great appeal because they don’t require any congressional action. Automatic enrollment is not a magic potion that can cure America’s retirement security angst, yet it’s the kind of initiative that could significantly help. As long as partisanship and polarization result in Congress offering Clearasil to cover deeper problems, creative, nongovernment solutions — like that offered by Mr. Laibson — provide an alternative to America’s savings problem and worries about the complexion of their retirement future.

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