This year was marked by major economic and political changes around the world. From Japan’s earthquake/tsunami disaster to new governments in the Middle East and the sovereign debt crisis in Europe, macroeconomic events contributed to a year of volatility in the markets. Among the most significant responses to global economic change was the U.S. launch of a serious debate on our national debt.
With all eyes on the federal budget, even entitlement programs such as Social Security have come under the microscope. While the debate continues, we have an opportunity not only to move toward national solvency, but also to improve our retirement system.
As the debt debate took center stage in Washington, some budget hawks sought to cut or limit tax benefits for retirement savings. But many voices — from both the public and private sectors — prominently advocated for the preservation of tax provisions that help Americans save for retirement.
Because of the debt crisis, I believe issues of retirement reform are more firmly entrenched on the national agenda. On a state level as well, economic conditions drove pension reform. In fact, more state legislatures enacted system changes in the first three quarters of 2011 than in all of 2010, with 27 states implementing significant changes, up from 21 last year.
In addition to the national discourse, regulators and industry leaders continued efforts to improve the defined contribution workplace savings system. New rules for 401(k) fee disclosure go into effect in 2012, and the Department of Labor this year extended compliance dates for disclosing fees to plan sponsors and participants.
Putnam, which already launched a program of 401(k) fee transparency, focused efforts this year on helping investors identify steps that can help them save for retirement income by:
- Estimating lifetime income probabilities
- Encouraging impulse saving
- Sharpening the view on retirement income
I believe the focus on retirement saving and the importance of personal solvency has been elevated among individual investors. Despite a sluggish economic recovery and periods of intense market volatility, 401(k) plan participants have remained committed to saving. In a study of plan activity in the first half of 2011, the Investment Company Institute found the withdrawal rate remained low, at the same level as the first half of 2010. In fact, only 1.6% of participants stopped contributing.
The defined contribution workplace savings system in the United States already reaches more than 83 million workers, predominantly through 401(k) plans. This system has proven itself to be strong, resilient, and always open to improvement.
Perhaps 2011 will be recalled as the year that America took its first steps toward a new national solvency. And it may also be the year that personal solvency became a priority for many more individual investors.