Conference studies sustaining income in old age

An estimated 70 percent of U.S. households live paycheck-to-paycheck, but that doesn't mean they can't save for retirement.

That's the argument of David Laibson, a Harvard University economics professor who was at a Pension Research Council conference Thursday at the Wharton School of the University of Pennsylvania.

The trick is to enroll workers automatically in retirement-savings plans. "When you auto-enroll, they stick with it," Laibson, who studies behavioral economics, said during a break at the conference, which continues through noon Friday.

He was among about 100 participants from government, industry and academia wrestling with how to sustain income into old age for the broad population.

The title of the conference, organized by Wharton professor Olivia S. Mitchell and Richard C. Shea, a lawyer with Covington & Burling L.L.P., is "Reimagining Pensions: The Next 40 Years."

The reference to 40 years recalls the period since the passage of the Employee Retirement Income Security Act, which in 1974 set standards for private pensions.

But the private retirement system then in place - with traditional defined-benefit pensions playing an important role - has largely been dismantled.

Instead, workers have defined contribution plans. But that is a bit of a misnomer, J. Mark Iwry, deputy assistant secretary for retirement and health policy at the U.S. Treasury Department, said during his luncheon address.

In reality, Iwry said, the United States has an "undefined contribution" system.

"There's the undefined contribution by the individual. They'll contribute what they'll contribute. There's the undefined contribution by the employer that will match the uncertain employee contribution," he said. Actual defined contributions by employers are "not a major part of our landscape."

Iwry said auto-enrollment of employees in 401(k) plans is key, but needs to be more robust.

As to whether workers can afford it, Laibson, who grew up in Haverford, said they can because people tend to spend what is in their bank account.

If income is diverted from the bank account, "the household makes do," in most cases not by cutting calories, but rather, for example, by buying a less expensive Lego kit for the kids, Laibson said.