Description: This essay explores the role that the emerging defined contribution retirement system may be playing in the growth of wealth inequality in the United States. The current system leaves many Americans with little or no retirement savings. Those with higher accumulation levels appear to invest proportionally more in equities, which may have an exponential effect of balances over long time periods. The author hypothesizes that willingness to take investment risk involves the relationship between the amount an investor has accumulated and what she/he needs in order to cover basic costs of living. This is one reason that investors with greater accumulation levels may be able to earn higher rates of return. The essay concludes by suggesting that the U.S. defined contribution system should include all workers and provide additional fiduciary guidance. Examples reforms, both in the U.S. and other countries, are provided.

Description: The article endorses broader use of lifetime income in DC plans. It explains why the use of DB plans will continue to decline. The article points out that plans sponsors will not willingly take on additional ERISA fiduciary exposure. The article endorses three regulatory reforms that would increase the use of lifetime income in DC plans. 1. A robust annuity issuer safe harbor that would free employers from fiduciary exposure for putting an annuity provider on the DC platform. 2. A requirement that a plan offer a lifetime income option to qualify for the 404(c) safe harbor. 3. A revision to 404(c) to allow plan sponsors to allocate part or all of the employer match to lifetime income.