Axa Event Panelists Express Hope for Retirement

Investors, financial-services companies and policymakers face plenty of uncertainties, given the unusual depth of the current financial crisis. But panelists at an April 21 leadership program sponsored by Axa Equitable Life Insurance Co. provided ideas about addressing future challenges and offered some perspective about how today's economic situation compares with those of the past.

Christopher M. "Kip" Condron, chairman and chief executive officer of Axa Equitable, said the financial crisis has caused people today to be "shell-shocked and paralyzed, like deer in headlights." Opportunities usually emerge during economic downturns, but they are hard to see in the fog of the moment, he said. Today, the fog means that it is hard for people to see the retirements they thought they were going to have.

Key themes emerged from the discussion, including the fact that Social Security is more secure than most people believe; the 401(k) plan is still a useful investment vehicle; and some changes in public policy could encourage more people to save and improve the level of retirement saving.

Dallas Salisbury, president and CEO of the Employee Benefit Research Institute, said while there is pressure on the Social Security system, the worst-case scenario over the next 75 years is that the system will pay out 60% of currently projected benefits. However, if that scenario were to play out, people receiving those benefits would still be able to buy more with the benefits than they are able to buy today, he said. Peter Brady, senior economist for the Investment Company Institute, estimated that the worst-case benefits would be at about 80% of projected benefits.

Eric Chaney, chief economist for Axa Group, said the personal savings rate may rise to as much as 10% in coming years from near zero last year. He argued that with the brisk rise in the value of stocks and real estate, which "came to a brutal end" in 2007 and 2008, "it just made sense that people didn't feel a need to save money." The market is now doing the job of changing the perception about saving, and wage earners will have a stronger preference in coming years for investment guarantees rather than riskier asset classes, he said. He predicted that inflation-protected government bonds will be especially attractive.

Pamela Perun, policy director for the Initiative on Financial Security for the Aspen Institute, called on public policymakers to implement a "lifespan approach" to savings that is simple and universal and that provides financial incentives to saving based on more than just reducing taxes. To encourage people to start saving sooner in life, the institute proposes creation of a child account to be funded by the government with $500 at birth, she said. The institute also favors a type of "home" account to help young adults save for a down payment. And those saving for retirement ought to be able to buy lifetime inflation-protected income annuities, she said.

With Social Security the primary source of income for 60% of retirees, Salisbury said most people need to save to augment those benefits. Meanwhile, Brady said 401(k)s are "a much more rational way" to accumulate such savings than a defined-benefit plan. He said 401(k) programs are "amazingly successful" in that about 60% of employees contribute to them, even though participation is voluntary. That compares with fewer than 10% of workers who contribute to Individual Retirement Accounts in most years. Salisbury added that automatic enrollment in defined contribution plans -- authorized under the Pension Protection Act of 2006 -- has boosted participation by 15% to 20% and that default investment options and the annual automatic increase of contributions are being used at high rates.

Even at the end of last year, some 96% of workers continued to contribute to their plans, Brady said.

(By Ron Panko, senior associate editor, Best's Review: Ronald.Panko@ambest.com)

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