New Bond Would Offer a Better Way to Secure DC Plans

A looming global retirement crisis threatens the three pillars of retirement due to insufficient funding, improper investment decisions and transferring risk to individuals least capable of bearing it. Many private-sector workers do not have coverage and are not saving enough for retirement. Governments, federal and state, and the financial industry must innovate to stem this multifaceted crisis. Current assets and investment approaches leave a complex menu of choices on how much to save, how to invest, and how to decumulate.The simple solution is to create a U.S. Treasury-issued bond called “bond for financial security,” or BFFS, a single instrument that encompasses both the accumulation and decumulation phases of a defined contribution participant. By matching the desired retirement cash flow pattern, BFFS distill retirement planning into a single decision: how much to save. It eliminates intermediary fees that cut into the retirement income pot. The main characteristics of BFFS would be inflation-indexed, coupon-only, that start to pay only at retirement, and that, too, only for a period tied to average life expectancy. BFFS are a good deal for governments, too. In fact, governments are the biggest beneficiaries. BFFS not only improve retirement outcomes for all defined contribution plans, but also have spillover benefits for the Obama administration and future governments. Cash flows from BFFS reflect synergistic cash flows for infrastructure spending; namely, large cash flows up front for capital expenditure, followed by delayed, inflation-indexed revenue once projects are online. Financing infrastructure has been a challenge and a priority for the Obama administration and other countries. BFFS can help many developed and developing countries achieve two key long-term goals for their citizens: more secure retirement income and better infrastructure.