Blackstone's Tony James
e-mailed John Podesta in January regarding a "Retirement Savings Plan" for all Americans, which Blackstone wants to put to work for its considerable fees.
John,
Teresa Ghilarducci passed along your interest in our Retirement Savings
Plan. We've spent considerable time researching and thinking about this
issue and believe we have some ideas that offer an immediate,
sustainable, low cost and politically viable solution to help tackle a
looming crisis. If we don't act, our country will see poverty rates and
downward mobility of middle class elderly people not seen since the
great depression. It is projected that 16 million retirees will be
living in or near poverty by 2022 and 25 million by 2050. If we do
nothing, 39 percent of all older workers will be poor or near poor at
age 65, so the need is real and imminent. The strain this newly poor
population will place on our social safety net will devastate federal,
state and local budgets for decades. Our goal was to devise a
politically feasible solution that addresses the problem now without
worsening the national deficit.
We do not believe the problem can be solved by making Social Security
better funded and/or adding a higher minimum benefits for several
reasons.
First, expanding Social Security would help to take care of the very
poorest members of society - but expanding Social Security doesn't help
middle class people very much. Social Security was designed as a safety
net for those facing poverty in old age. It was never meant to be a
vehicle to guarantee a middle class retirement. Social Security is an
entitlement, where savings are redistributed based on income. This is a
worthy goal in and of itself, but not the focus of our plan. In contrast
to Social Security, with a Guaranteed Retirement Account, you get back
what you put in, plus investment earnings. These accounts build on the
money people put into their own accounts, giving back even more. In
other words, raising SS payments above the poverty line isn't the same
as guaranteeing widespread retirement security.
Second, unlike Social Security, this is actual cash in each person's
individually owned retirement savings account. Because it is real
capital that can be invested well (like a DB plan), the higher returns
(6-8% per year) finance a lot of the future needs without requiring
larger contributions or adding to the deficit in the future. You don't
get investment returns filling a lot of the funding gap with Social
Security since it is unfunded.
Third, increasing Social Security would mean adding to FICA taxes. This
plan is easier on workers because half comes from employers (offsetting
other costs), so only 1.5% from workers. And for the 50% of Americans
below median income, that "cost" is offset by a federal tax credit. This
tax credit is deficit neutral because we are doing away with the 401k
deductions, which benefit primarily the affluent.
Finally, Social Security is such a fraught issue with people so dug in,
we worried that opening it up for fundamental change was not
implementable from a pragmatic standpoint. So we decided to build on
Social Security as is. With our plan, the Guaranteed Retirement
Accounts are individually owned and controlled and will not require an
additional or larger entitlements which would have obvious appeal to the
other side of the aisle.
We looked beyond Social Security and propose individually funded add-on
accounts. In this way, all Americans can save more and invest more
effectively over a longer period of time to support their retirement.
All Americans need well-managed, diversified retirement accounts they
can contribute to for their entire career.
We are happy to talk these through with you at any point, but here are
the basic principles:
Universal Coverage: Every American who works without a pension plan
would automatically have their own Guaranteed Retirement Account
(supplemental to Social Security and any individual retirement savings).
Individuals accumulate funds in their own accounts and retain full
control. Upon retirement, they receive guaranteed payments for their
lifetime.
Cost Neutral for Workers AND Taxpayers: Savings are mandatory but cost
neutral for almost all Americans who earn below median income. We've
calculated that workers and their employers need to contribute an annual
3% to close the retirement savings gap (1.5% each). And a tax credit to
offset this contribution for families at or below the median income
will be paid for by removing existing deductions that overwhelmingly
favor the wealthy, making the plan deficit neutral.
Redistributes Government Support to Those Who Need It Most: The
refundable tax credit is a positive change from the current subsidies
that favor high earners. In 2014, federal and state governments spent
$120 billion to subsidize workers' pensions. But these tax benefits are
regressive and do little to benefit workers most at risk. In 2014, the
most affluent Americans received over 79% of the benefit from retirement
tax deductions. The Retirement Savings Plan remedies that by
redeploying existing government support from wealthy retirees to those
who need it most.
Individually Owned, Effectively Invested: Unlike Social Security,
workers maintain ownership over their account through a transparent
investment process. Their assets will be pooled and invested in
long-term, low-fee strategies that generate higher returns (6-8% per
year) than current 401(k) plans, building on the amount invested and
giving back even more.
Guaranteed Lifetime Income: Though privately managed, funds will have a
government guaranteed return of 2%. Upon retiring, savings will be
returned through annuitized payments. This guarantees a continuous
standard of living for as long as retirees live.
Federal Plan; Nationally Mandated: A federal program will provide
coordinated collection, record-keeping and payments, as well as better
negotiated fees for asset management. And by integrating the payment
system seamlessly into Social Security's existing infrastructure, we
avoid the need for additional bureaucracy and create efficiencies and
savings over time. In addition, only through a Federal plan can we
create the tax credit that mitigates the cost for families below median
income by redeploying 401k deductions.
Incents Desiring Americans to Work Longer: Workers decide when they
retire and begin collecting their savings. This will help Americans to
work longer if they wish, which has proven to have significant economic
(as well as mental and physical) benefits.
Bi-Partisan Appeal: The GRA model avoids larger entitlement
conversations by keeping accounts under individual's control and
redistributing savings based on the amount invested, not based on
income. And it does so without impacting the budget or raising taxes.
From the many conversations we've had with members of Congress from both
sides of the aisle, our sense is that it's politically viable. This
plan intentionally does not touch or attempt to alter Social Security,
address underemployment, mitigate the wealth disparity, or raise
stagnant middle class incomes. However, it provides an actionable
solution to an impending crisis. And this solution will have resounding
impact on more than one half of all working Americans. It will relieve
our welfare programs from undue strain and free up revenue for other
pressing needs.
This will all be fully fleshed out in a white paper we are releasing in a
few weeks. We are happy to make time available to discuss these ideas
at your convenience.
Our recent NYT op-ed:
http://www.nytimes.com/2016/01/02/opinion/a-smarterplan-to-make-retirement-savings-last.html
Tony and Teresa
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IB Times reported how Blackstone could benefit, in James own words:
“Managing the Guaranteed Retirement Accounts in a pooled fashion
would let them leverage that scale to pay lower fees,” James said. “They
would also have access to [the] highest quality managers who could
adopt long-term investment horizons and invest in less liquid, but
higher returning, asset classes that are more appropriate for retirement
funding.”
In the blueprint of the plan, James lamented that
401(k) systems “don’t invest in longer-term, illiquid alternatives such
as hedge funds, private equity and real estate,” and said the new
program could invest in “high-yielding and risk-reducing alternative
asset classes.” In a CNBC
interview, James said he wants the billions of dollars of new retiree
savings to be invested “like pension plans.” He noted that in “the
average pension plan in America, about 25 percent is invested in stuff
we do, in alternatives, in real estate and private equity and
commodities and hedge funds.”
Neera Tanden of the Center for American Progress wrote John Podesta about Mr. James
saying:
"He's a really good guy. And given he will take over Blackstone, one to develop a real relationship with. And he's really nice!"
Nice is not the first word that comes to mind for the greed and leverage boys.
Update 11-3-16: The word
is spreading
