On The Hot Seat

Retirement ‘daunting challenge’ for US labor official

Phyllis C. Borzi, Assistant Secretary of Labor
Josh Reynolds for the Boston Globe
Phyllis C. Borzi, Assistant Secretary of Labor

Phyllis C. Borzi is an assistant US secretary of labor and the nation’s chief 401(k) retirement plan regulator. Borzi was recently in Boston to speak at a conference on women saving for retirement. She spoke later with the Globe’s Beth Healy about the Obama administration’s efforts to encourage greater savings by workers and the launch of new rules to require more options and cost transparency in workplace plans.

Overall, how dire is the outlook for workers when it comes to saving enough to live on in retirement?

It’s a very daunting challenge. As policy makers, we’ve spent a couple of decades encouraging people to save for retirement. I think we’ve been marginally successful - there are more assets in these plans than a few years ago.

But as baby boomers begin to retire, how are they going to make their money last through retirement? In the old days, there were defined benefit plans, and people were ready to retire, they could look forward to a stream of income that would last through the rest of their life. Nowadays, most people don’t have a plan with that kind of security.

Your statistics show many people struggling with poverty as they get older - 12 percent of women over age 75, and 7 percent of men. Are women facing a particular challenge saving for retirement?


They face special challenges for a bunch of reasons. First of all, women generally live longer than men, so they’re more at risk of outliving their retirement savings. Even though we’ve made great strides over the last couple decades in income equality, women still earn less than men, and they’re more apt to interrupt their careers to take care of children or parents.

It seems that some women who returned to the workforce later in life also didn’t realize they should have signed up for retirement and pension plans.

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For some reason, women tend to underestimate what they’re going to need in retirement. One of the things I say all the time when I talk to groups - not just of women but of men as well - is if your company offers you a 401(k) plan, join it. Don’t leave money on the table. At about half of these plans, employers will provide some sort of a match.

Your office has been working on greater transparency on 401(k) fees. How important is that in the scheme of things?

It’s really important. People don’t understand the rate of return they earn on their investments. The higher the fees on your plan, the lower your rate of return. People don’t even understand that they’re paying. And employers don’t necessarily understand what the fees are, related to the plan. The fees go directly to the bottom line; it’s a huge wealth transfer.

So how would you summarize the new rules about fee disclosure coming into effect this summer?

For the first time, employers and participants in the plan are going to be able to understand how much they’re really paying. What are the fees and expenses associated with the choices that they make? This will really empower consumers to make better choices.

There’s also the problem that the employers are negotiating the fees but not paying them. The costs are passed along to the employees.

In the early days, there were employers who paid the fees. I commend employers who are wiling to provide benefits for their employees. At one meeting, I asked is there anybody in the room whose company still pays the fees? And two hands went up. And everybody started laughing at them.

That was two out of how many employers?


A couple hundred.

The president also has talked about the need for “lifetime income’’ options in retirement plans. What would those look like, and why the focus on this now?

We are concerned about this lifetime income option, because the marketplace has shifted. As more people are getting their income from a 401(k)-type plan, most of them don’t even have the choice of getting their income in a way that replicates the defined benefit plan.

Our first step is to try to educate people as to what the value of taking a lifetime income stream would be. Most people, when they have that option, take the cash. A lifetime annuity will give them greater security.