SSA’s Goss, Ghilarducci Blast DC System

A May 21 Senate Finance subcommittee hearing that purported to be about strengthening Social Security morphed into a critical discussion of the merits of the defined contribution system and industry. 

Testifying at the hearing held by the committee’s Subcommittee on Social Security, Pensions, and Family Policy, Social Security Administration Chief Actuary Stephen C. Goss noted that “Social Security benefits have always been intended to provide a floor of protection for retirees,” but that they are just one of the legs of the “three-legged stool” on which retirees could rely. DB plans have long been in decline, Goss said, and have been largely replaced by DC plans. Goss said that DC plans are “infrequently purchased” and that Social Security is “the sole source of lifetime retirement income for most Americans.” 

Teresa Ghilarducci, a well-known critic of the DC industry and supporter of a government-run retirement system, joined Goss in blasting the DC approach. “The individual-directed, commercial, voluntary and tax subsidized employer system has not and will not become an important source of income for most older Americans,” said Ghilarducci, who is Chair of the Economics Department and Bernard L. and Irene Schwartz Chair in Economic Policy Analysis at The New School for Social Research in New York City. 

Ghilarducci argued for a system premised on mandated savings. A way to address the deficiencies of the current system, she said, was for American workers to have “a tier of advanced-funded retirement accounts that have many features of the Social Security system. Americans need a mandatory, universal, advanced funded retirement account that is professionally managed, is appropriately tax-subsidized and pays out annuities.”

Jason Fichtner, of George Mason University’s Mercatus Center, offered a different perspective. Fichtner took issue with the term “retirement crisis” and argued that, “Painting all Americans with the broad brush of a “retirement crisis” creates an incomplete picture of the true financial landscape faced by America’s future retirees.” Further, he said that “The narrative of the ‘retirement crisis’ leads us to look toward greater dependence on — and the expansion of — government programs such as Social Security, which are already facing severe financial problems.”