Last night, retired lieutenant general Michael Flynn addressed the Republican convention as a headline speaker on the subject of national security. One of Donald Trump’s closest advisors—so much so that he was considered for vice president—Flynn repeated many of the themes found in his new book, The Field of Fight, How We Can Win the Global War Against Radical Islam and Its Allies, which he coauthored with Michael Ledeen. (The book is published by St. Martin’s, which also published mine.)

Written in Flynn’s voice, the book advances two related arguments: First, the U.S. government does not know enough about its enemies because it does not collect enough intelligence, and it refuses to take ideological motivations seriously. Second, our enemies are collaborating in an “international alliance of evil countries and movements that is working to destroy” the United States despite their ideological differences.

Readers will immediately notice a tension between the two ideas. “On the surface,” Flynn admits, “it seems incoherent.” He asks: 

“How can a Communist regime like North Korea embrace a radical Islamist regime like Iran? What about Russia’s Vladimir Putin? He is certainly no jihadi; indeed, Russia has a good deal to fear from radical Islamist groups.” 

Flynn spends much of the book resolving the contradiction and proving that America’s enemies—North Korea, China, Russia, Iran, Syria, Cuba, Bolivia, Venezuela, Nicaragua, al-Qaida, Hezbollah, and ISIS—are in fact working in concert.

No one who has read classified intelligence or studied international relations will balk at the idea that unlikely friendships are formed against a common enemy. As Flynn observes, the revolutionary Shiite government in Tehran cooperates with nationalist Russia and communist North Korea; it has also turned a blind eye (at the very least) to al-Qaida’s Sunni operatives in Iran and used them bargaining chips when negotiating with Osama bin Laden and the United States. 

Flynn argues that this is more than “an alliance of convenience.” Rather, the United States’ enemies share “a contempt for democracy and an agreement—by all the members of the enemy alliance—that dictatorship is a superior way to run a country, an empire, or a caliphate.” Their shared goals of maximizing dictatorship and minimizing U.S. interference override their substantial ideological differences. Consequently, the U.S. government must work to destroy the alliance by “removing the sickening chokehold of tyranny, dictatorships, and Radical Islamist regimes.” Its failure to do so over the past decades gravely imperils the United States, he contends.

The book thus offers two very different views of how to exercise American power abroad: spread democracies or stand with friendly strongmen...[P]erhaps it mirrors the confusion in the Republican establishment over the direction of conservative foreign policy.

Some of Flynn’s evidence for the alliance diverts into the conspiratorial—I’ve seen nothing credible to back up his assertion that the Iranians were behind the 1979 takeover of the Grand Mosque in Mecca by Sunni apocalypticists. And there’s an important difference between the territorially-bounded ambitions of Iran, Russia, and North Korea, on the one hand, and ISIS’s desire to conquer the world on the other; the former makes alliances of convenience easier than the latter. Still, Flynn would basically be a neocon if he stuck with his core argument: tyrannies of all stripes are arrayed against the United States so the United States should destroy them.

But some tyrannies are less worthy of destruction than others. In fact, Flynn argues there’s a category of despot that should be excluded from his principle, the “friendly tyrants” like President Abdel-Fatah el-Sissi in Egypt and former president Zine Ben Ali in Tunisia. Saddam Hussein should not have been toppled, Flynn argues, and even Russia could become an “ideal partner for fighting Radical Islam” if only it would come to its senses about the threat of “Radical Islam.” Taken alone, these arguments would make Flynn realist, not a neocon. 

The book thus offers two very different views of how to exercise American power abroad: spread democracies or stand with friendly strongmen. Neither is a sure path to security. Spreading democracy through the wrong means can bring to power regimes that are even more hostile and authoritarian; standing with strongmen risks the same. Absent some principle higher than just democracy or security for their own sakes, the reader is unable to decide between Flynn’s contradictory perspectives and judge when their benefits are worth the risks. 

It’s strange to find a book about strategy so at odds with itself. Perhaps the dissonance is due to the co-authors’ divergent views (Ledeen is a neocon and Flynn is comfortable dining with Putin.) Or perhaps it mirrors the confusion in the Republican establishment over the direction of conservative foreign policy. Whatever the case, the muddled argument offered in The Field of Fight demonstrates how hard it is to overcome ideological differences to ally against a common foe, regardless of whether that alliance is one of convenience or conviction. 

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On July 20 and 21, defense ministers from several nations will gather in Washington, D.C. at the invitation of U.S. Secretary of Defense Ash Carter. The meeting will bring together representatives from countries working to confront and defeat the Islamic State (or ISIL). French Defense Minister Jean-Yves Le Drian will be among those at the summit discussing how to accelerate long-term efforts to fight ISIL in Iraq and Syria. The close relationship between France and the United States has provided a solid base for security cooperation for decades, and in recent years, France has become one of America’s strongest allies in fighting terrorism and a prominent member of the international coalition to defeat ISIL.

On July 20, the Foreign Policy program at Brookings hosted Minister Le Drian for a discussion on French and U.S. cooperation as the two countries face multiple transnational security threats. Since becoming France’s defense minister in 2012, Le Drian has had to address numerous new security crises emerging from Africa, the Middle East, and within Europe itself. France faced horrific terrorist attacks on its own soil in January and November 2015 and remains under a state of emergency with its armed forces playing an active role in maintaining security both at home and abroad. Le Drian recently authored “Qui est l’ennemi?” (“Who is the enemy?”, Editions du Cerf, May 2016), defining a comprehensive strategy to address numerous current threats.

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Please note that this Engelberg Center for Health Care Reform Health Policy Issue Brief first appeared in the Health Affairs Blog on July 31, 2014. Click here for the Health Affairs Blog version.

Abstract

Individual patient expanded access is a process by which patients can obtain investigational drugs that have not been approved by the Food and Drug Administration (FDA) outside of a clinical trial setting from biopharmaceutical companies when no other alternative therapy is available. Currently, no industry-wide structural principles exist to help companies navigate this process while balancing the needs of getting a drug to the market as quickly as possible with providing potentially life-saving treatment to individual patients. The Engelberg Center convened a stakeholder group to identify common themes and identify common principles related to expanded access, as none currently exist. The result was 4 A’s - Anticipation, Accessibility, Accountability, and Analysis – to help assist patients, providers, and companies with expanded access. Process and capacity building recommendations for the FDA also were proposed to assist companies with sustaining expanded access programs.

Call to Action: The Importance of Expanded Access Programs

Individual patient expanded access, sometimes termed “compassionate use,” refers to situations where access to a drug still in the development process is granted to patients on a case-by-case basis outside of a clinical trial, prior to completion of mandated clinical trials and approval by the Food and Drug Administration (FDA). This typically involves filing a single patient or emergency investigational new drug (IND) request with the Food and Drug Administration and voluntary release of the drug by the manufacturer. Generally, the following criteria must be met: there is reasonable expectation of meaningful benefit despite the absence of definitive clinical trial data, the patient has a serious or life-threatening condition, there are no comparable or satisfactory treatment alternatives, and there are no suitable clinical trials for the drug available to the patient. This form of expanded access, which is the focus of this paper, is different from the situation in which a drug is discharged to a large group of needy patients in the interval between successful phase 3 trials and presumed FDA approval, a strategy often termed a “treatment” IND or protocol, which was initially used in the 1980s for releasing zidovudine to patients with acquired immune deficiency syndrome.

The Engelberg Center for Health Care Reform at the Brookings Institution recently invited senior leaders from several pharmaceutical companies, two bioethicists, a senior FDA representative, and a patient advocate to share experiences and discuss organizational strategies related to expanded access (see acknowledgements). A driving factor for this meeting was a recent flurry of highly public cases of desperate patients seeking access to experimental drugs, which lead to social media campaigns and media coverage. Such cases included 7-year-old Josh Hardy (brincidofovir from Chimerix for disseminated adenovirus infection), 45-year-old Andrea Sloan (BMN673 from BioMarin for ovarian cancer), 41-year-old Nick Auden (pembrolizumab from Merck for melanoma), and 6-year-old Jack Fowler (intrathecal idursulfase from Shire for Hunter Syndrome). Expanded access requests to the FDA for new patients are increasing, from 1,000 patients nationwide in 2010 to more than 1,200 in 2012.[i] (This is likely an underestimate, since it does not include appeals made directly to companies.)

In the wake of these events, it became clear that many biopharmaceutical companies had varying experiences and policies related to such access. From the domestic regulatory standpoint, the FDA revised its expanded access regulations in 2009, which define criteria that must be met to authorize expanded access, list requirements for expanded access submissions, describe safeguards that will protect patients, and preserve the ability to develop meaningful data about the use of the drug. Biopharmaceutical companies typically face a complex global environment in which legal and regulatory frameworks can differ substantially. At the meeting, a senior FDA representative indicated the agency has approved over 99 percent of expanded access requests submitted via single patient or emergency INDs since 2009, suggesting the regulatory agency is not a major barrier to expanded access. As such, provided the access request is reasonably related to the potential benefits of the drug, the biopharmaceutical company is almost solely responsible for the decision and liability regarding whether to grant expanded access to an individual. Still, the public belief persists that the FDA is the main bottleneck that restricts access. In April 2014, Representative Morgan Griffith (R-VA) proposed H.R. 4475, The Compassionate Freedom of Choice Act of 2014, designed to restrict the FDA’s ability to prevent the use of investigational drugs in terminally ill patients. Similarly, some states have passed “Right to Try” legislation to reduce FDA oversight, but contains no requirement that companies must make drugs available.[ii]

The goal of our meeting was to identify common themes and possibly broad outlines to suggest industry-wide policies related to expanded access, as none currently exist. The group first discussed background issues related to expanded access and agreed on definitions. The meeting then focused on three topics. First, the group participants who play key roles in evaluating expanded access requests were invited to share narrative experiences in specific clinical cases, in an effort to lay the groundwork for trust and open discussion. Second, the group was asked to identify internal industry-specific structural barriers, such as the existence of clear procedures or tracking mechanisms within companies to handle requests. Finally, the participants reflected on situations in which expanded access may not be appropriate, or where regulatory barriers or liability concerns may hinder expanded access. This paper reflects the authors’ observations and assessment of the internal and external landscape, based upon information provided by the meeting participants.

Laying the Groundwork with Shared Experiences

The FDA allows companies to provide drugs and charge individual patients that do not meet the enrollment criteria for clinical trials geared towards regulatory approval through expanded access programs.[iii] These programs are meant to provide the drug directly to treat the patient’s condition, rather than having the primary goal of collecting efficacy or detailed safety data in support of approval. Before 1987, the FDA lacked formal recognition of expanded access, although investigational drugs were provided informally.[iv] Since then, the FDA has instituted novel classes of individual INDs so that a company sponsor or licensed physician can legally obtain treatment access from the FDA to provide a drug while it is still in the approval process.[v] Essentially, this provides companies a legal exception from the law to ship unapproved drugs across state lines, and if they desire, to charge for them. These INDs are designed solely for the potential benefit of desperate patients and not intended to formally collect safety or efficacy data that could potentially inform a regulatory decision, but can have regulatory impact, nonetheless.

At the outset, several participants objected to the term “compassionate use,” since it introduces inherent value decisions, can emotionally charge discussions, and does not recognize that there may be valid and ethically appropriate reasons for denial. The generally agreed upon term “expanded access,” is used throughout this paper. (One participant suggested the term “early access.”) Ideally, the term would make it obvious that this is access to an unapproved drug, in order to temper expectations of favorable results. Somewhat confusingly, the FDA uses the terms “expanded access,” “access,” and “treatment use” interchangeably to refer to the use of a drug, and of which none clearly identify the stage of development.[vi]

Participants shared numerous examples of requests for expanded access and explained that their companies handle anywhere from a handful to several hundred requests per year. The following selected stories illustrate the wide range of experiences and situations that companies encounter when navigating the complex decisions involved in administering an expanded access program. Several other examples were discussed and the specific participants expressed that they would be willing to share these particular examples publicly.

Chimerix, a 54-employee company based in Durham, North Carolina, is developing the drug brincidofovir and previously had created an intermediate expanded access protocol for the drug (CMX001-350) as encouraged by the FDA following over 200 emergency INDs granted for access to brincidofovir.[vii] One such case was for an armed services member with previously undiagnosed acute myelogenous leukemia who developed life-threatening vaccinia infection following smallpox vaccination in 2009.[viii] The patient received the drug from Chimerix through an emergency IND. After two years, the company had not secured FDA approval for the drug and eliminated expanded access in February 2012 in order to focus on studies which would inform a regulatory decision. In March 2014, Chimerix originally rejected an emergency IND request for 7-year old, Josh Hardy, who was critically ill from disseminated adenovirus infection after bone marrow transplantation. A highly public social media campaign targeted the company in the wake of this decision, and the experience was traumatizing for many of the employees. Following discussion with the FDA, Chimerix initiated a new clinical trial for the treatment of adenovirus infection in order to collect safety and efficacy data to support an NDA submission. Hardy was the first patient enrolled in the clinical trial, and his family reported through several media outlets that he recovered from the adenovirus infection and was discharged home.

One biopharmaceutical company representative described receiving a middle-of-the-night telephone call directly at home, with an emergent, time-sensitive request for an experimental therapy for a critically ill child with a rare acute disease in a foreign pediatric intensive care unit, where regulatory standards were different from those in the U.S. The ideal pediatric dosage was unknown, and only limited safety data and clinical details were available. Urgent efforts were made to gather more information and the request was approved, but despite these efforts the patient did not survive.

Bristol-Myers Squibb began a clinical trial for a cancer drug several years ago.[ix] A woman with pancreatic cancer enrolled in the trial and saw that her tumor was no longer growing. After the 3.5 year trial, the study closed because the drug was deemed ineffective for all other patients and was not approved for further development. However, the company continued to provide the drug for the one woman for whom the drug was effective through a single patient IND for an additional 9 years.

To demonstrate the volume of expanded access requests, one participant showed several messages on his mobile device during the half-day discussion, directly from patients who had located his email addresses through on-line searches, to plead for expanded access to an anticancer therapy.

Development of Structural Principles: The Four A's 

Broadly, no specific industry-wide consensus on expanded access procedures exists. As a result, there is significant variation in company policies and procedures. During this phase of discussion, participants shared their own company strategies and suggested possible areas of consensus that might form the basis for shared principles and industry-wide practices. These suggestions fell into four categories, which we termed the 4 “A’s”: Anticipation, Accessibility, Accountability, and Analysis (see Figure 1).

First, the group agreed that large and small companies should anticipate the need for and creation of expanded access programs when developing drugs expected to generate expanded access requests and as part of the drug development plan. This is particularly important for drugs that might be considered for priority or breakthrough designation during FDA approval. In these cases, companies should strongly consider developing a written expanded use policy with clear guidelines for inclusion and exclusion, which would also feature a defined review process, clear decision making criteria, and a defined time frame for response to requests. This also allows companies to plan for the demands that may be placed on their supply chain and staff resources to ensure sufficient supply for investigational and expanded use purposes. Identifying a decision maker within each company and for each disease area/product will also help patients or physicians reach the appropriate contact when requesting a drug, as well as assist the company in gaining expertise in responding to these requests. For example, one large company identifies one point of contact for all expanded access requests regarding each product and posts that individual’s contact information on the website.

In the early stages of drug development, supplies of investigational drugs are extremely limited. This is often because the technically-challenging process of optimizing drug product manufacture takes a considerable amount of time. Low yielding manufacture batches are not uncommon at the early phases of research. Some companies do not approve expanded access requests because they do not have enough of the drug in stock to supply these external requests and meet the needs of investigational study patients and individuals participating in clinical trials, an issue which may be particularly acute for biologics. Smaller companies may have more resource constraints, such as inadequate staff to manage requests or supply chain and logistics issues. One representative suggested that if a company had early transparency from regulators about the final numbers of subjects they would be willing to accept to achieve drug development milestones, it would make it much easier for the company to feel less reservation about its drug supply. (It may be beneficial for companies to analyze their financial ability to provide drugs potentially at no cost or when there is not a large enough supply, ideally in a transparent manner.)

Once an expanded access policy is anticipated and developed, the second key principle the group identified was making the policy accessible to all individuals who may qualify. First, for patients, with guidance from their treating physician, the company making the drug should always steer the patient to enter a clinical trial (if they meet eligibility criteria). If the contacted company cannot accommodate the patient, they should steer them to other open trials if possible, even if sponsored by another company. Many of our participants noted that this already occurs.

The group was particularly cognizant of the disparity in access to drug companies and their expanded access programs: patients with savvy social media strategies are more likely to succeed in navigating across organizational constraints than without similar sophistication. The group believes that increased accessibility would assist in making opportunities for expanded access more equitable. In addition, these policies could help educate patients and physicians about submitting legitimate expanded access requests and help decrease the costs of reviewing inappropriate requests on the company (for example, if there are other proven therapies or the situation is not life threatening).

If the patient is ineligible for a trial, the patient should be able to easily access the written expanded access policy online. For example, both large and small companies like Pfizer, Bristol-Myers Squibb, Shire, and Merck post their expanded access policies on their websites, though the terminology may in some cases be complex. In addition, Janssen has developed a video explaining their policies in non-technical terms. Ideally, such policies should be available in some web based or public facing platform to both patients and physicians and written in a clear manner that is jargon free and accessible to individuals at various education levels. Most participants felt strongly that requests for expanded access should originate from a medical provider, not from a patient, since expertise is needed to first screen appropriate candidates. This is consistent with current FDA regulations for an IND, in which a physician or qualified medical expert must sponsor an IND or serve as an investigator under an existing IND for expanded access.

Third, companies should have accountability to the requesting party for expanded use requests that they receive and review them within a specified, transparent amount of time. If the request could not be approved, the company should consider clear communication and provide an explanation of why the request was turned down. In these cases, some participants suggested that the company might also consider instituting an appeals process by which a patient can receive an additional review if not approved, potentially from a non-binding third party such as an independent, multidisciplinary body or a regulatory agency like the FDA. (Two participants, however, were uncomfortable with any third party review.)

The final principle would encourage companies to release timely analysis of data from expanded access patients. In addition to tracking communication, companies should keep a database of the number of requests and outcomes, in a manner that doesn’t slow getting drugs to needy patients rapidly. One company refined its internal tracking tools to determine who was requesting drugs, for what conditions, and where they lived. Where possible, companies might be encouraged to share anecdotal or preliminary safety or efficacy data from expanded access in peer-reviewed or other refereed venues in a prudent time frame following collections, if this is available or known. This is not always possible, because emergency INDs do not require provision of safety or outcome data to the company.

There are several challenges associated with operationalizing this in the current model, namely the appropriateness of anecdotal data, the level of detailed safety and efficacy data currently available through expanded access, suitability for publication, and funding for these activities in the current budget climate. One potential approach to address this is funding from federal or state regulatory agencies or payers for the reasonable costs of follow-up and reporting outcomes.

Regulatory Considerations

The participants then discussed the types of risks, including regulatory and financial, that may affect companies’ expanded access policies. When a company is considering expanded access requests, they consider the risks-benefits of providing the drug outside of a clinical trial as well as the potential for any regulatory issues in an era of litigation and an increased threshold for demonstration of safety. While a company’s provision of a drug for expanded access is voluntary, the FDA does require the company to collect and report safety data. Notably, none of the representatives felt that the FDA is a major regulatory barrier to processing and approving expanded access requests once the sponsor has reviewed the request, assessed the benefit-risk, and determined the request meets FDA requirements and evidentiary standards. In addition, the attendees felt that adverse effects and related liability risk were not of particular concern given that the drugs are assessed on a risk-benefit analysis.

However, companies that make drugs in particularly limited markets with small numbers of patients (for example, for unusual diseases with less than 200,000 patients nationwide which may justify a special designation called “orphan status”) may be more concerned about restrictive labeling if an unusual adverse event occurred even in one or two patients during expanded access of an orphan or small market therapy. However, there is no data of which participants were aware and no public reports that an adverse event during expanded access has harmed regulatory approval.[x] The group opinion was that that safety data would be available eventually in any event and an FDA “safe harbor” provision would not necessarily affect companies’ willingness to accept more requests for expanded access. A final concern was that there is no regulatory mechanism to consider data from expanded access in the evidence generation process for approval.

An Expanded Role for the FDA

While the FDA may not serve as a strong barrier to expanded access, the group considered strategies to promote equitable and fair access. For example, some argued that the breakthrough or priority review categories for FDA review might identify products that could have high potential for expanded access requests. This designation expedites “the development and review of drugs for serious or life-threatening conditions.”[xi] As of mid-April 2014, the FDA had received nearly 180 requests for breakthrough designation, with 44 requests granted.[xii] By hastening the drug development process, the FDA has already begun to bring drugs that have a reasonable expectation of benefit to the market faster. In order to receive breakthrough therapy designation, current legislation might be amended so companies could be asked to provide evidence that the 4 A’s are being followed in some capacity.

The FDA might also assist companies in establishing expanded access programs during open clinical trials in two main areas: process and capacity building. First, in terms of process, the FDA could be asked to create a defined path for regulatory approval with provisions that would encourage companies, both large and small, to include plans for expanded access programs when developing a drug. While FDA’s draft guidance related to INDs notes that larger expanded access programs could threaten enrollment in clinical trials,[xiii] and some participants agreed that this was a significant issue, not all companies have had difficulties enrolling patients in both clinical trials and expanded access programs. For example, one large pharmaceutical company left a Phase 1 clinical trial open for a promising therapy while concurrently enrolling individuals who didn’t qualify for open clinical trials into an expanded access program, without appreciable leakage of enrollees in their advanced phase trials that might affect the key development pathway.

Second, the FDA could support convening around capacity building and sharing best practices with companies. With the understanding that there are many small biotechnology or pharmaceutical companies with limited budgets and staff, the FDA could foster a partnership of large and small companies. This partnership could be achieved by convening meetings where companies share their experiences in creating and sustaining expanded access programs. This could be supported by creating a database for these shared ideas, as well as any expanded access data that can be made legally available, such as how many requests are granted or patient outcomes.

To ensure equitable, consistent, and transparent review of requests, some companies suggested the use of an impartial external advisory board. Similar to an unbiased review from an institutional review board (IRB), this committee could have an advisory or decision making function. Companies with supply constraints may feel that if they cannot give the drug to everyone who requests it, then they should give it to no one. This committee could help the company triage the patients who would benefit the most, and would be protected from liability.

Next Steps

The most efficient and equitable way to make new effective treatments to the largest number of needy patients is regulatory approval, accelerated or otherwise, following successful demonstration of efficacy and safety for a given indication in a specific population. Until that process is complete, access to an experimental therapy is by definition an additional risk, as the agreed necessary safety and efficacy have not yet been demonstrated. True informed consent in this setting is difficult to obtain (i.e. studies have shown that severely ill patients, such as those with life-threating circumstances requesting expanded access, had less retention of information discussed in the informed-consent process and less-clear understanding of the risks of therapy compared to healthier patients[xiv]).

One position companies and regulators can consider is that the default answer to expanded access requests should be affirmative, unless there are compelling reasons for not approving requests to patients with life-threatening illnesses. (Such reasons, for example, might include limited treatment supply or lack of reasonable expectation of benefits versus risks.) Such a position would require, however, that there be broader industry, clinician, regulatory, and patient advocacy agreement of shared principles. This paper outlines the experiences, structural principles, and regulatory considerations of a small group, but further meetings may convene a broader group of stakeholders to build upon these concepts. Such consensus-based approaches might lead to durable systems that meet the needs of desperate patients who have run out of options—while allowing innovation to continue to benefit those who may come afterwards.

Acknowledgements: We are grateful for the participation of the following representatives in the roundtable: Jeff Allen (Friends of Cancer Research), Michelle Berrey (Chimerix), Renzo Canetta (Bristol-Myers Squibb), Anne Cropp (Pfizer), Joseph Eid (Merck), Aaron Kesselheim (Harvard Medical School), Howard Mayer (Shire), Jeffrey Murray (FDA), Lilli Petruzzelli (Novartis), Amrit Ray (Janssen), and Robert Truog (Harvard Medical School). We thank Mark McClellan (Brookings Institution) for helpful discussions of this topic and comments on the manuscript, and to the Richard Merkin Foundation for support. The views and opinions expressed in this article were interpreted and organized by the staff of the Brookings Institution. They do not necessarily reflect the official policy or position of any individual roundtable representative, their companies, or their employers.

References

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• The Four A's of Expanded Patient Access

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In July 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act, a far-reaching and still-controversial piece of legislation that was intended to reduce the odds of a repeat of the worst financial crisis in generations.  Five years later, is it working as hoped? Did it go too far—or not far enough? Are there parts that should be revisited? What remains on the U.S. and global financial-stability to-do list? 

On July 8, the Hutchins Center on Fiscal and Monetary Policy hosted a conversation with Treasury Secretary Jack Lew to address those and other questions about financial stability and the economy.

 Follow the conversation at @BrookingsEcon or #DoddFrank

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Americans — especially low- and middle-income workers — are simply not saving enough for retirement. The current retirement income deficit—the gap between what Americans will need in retirement and what they will actually have—is well over $6 trillion. This gap will be insurmountable without a significant change to current tax policy to help incentivize more Americans to save for their own retirement.

On September 9, the Retirement Security Project at Brookings hosted a briefing in collaboration with the Senate Special Committee on Aging to examine new ways to help Americans save for retirement without increasing government spending. A panel of experts on tax, retirement and budget policy explored ideas to modify the tax incentives for retirement savings.

After the panel, participants took audience questions.

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Americans who use defined contribution retirement savings plans (for example, 401(k) or 403(b) plans) or Individual Retirement Accounts will see their retirement security enhanced by two recently announced regulatory initiatives. The first is a series of Treasury Department/IRS proposed regulations that such individuals to use annuity-like guaranteed lifetime income products. The second is a final Department of Labor rule requiring complete fee disclosure to employers sponsoring retirement saving plans. Together, the two initiatives will give current retirement savers and future retirees more flexibility in structuring their retirement incomes, while making it possible to avoid excessive or hidden fees.

Four Treasury/IRS proposals, which were developed under the leadership of our former RSP colleague Mark Iwry, deal with several of the most pressing issues faced by employers and savers that currently reduce the use of annuities. The first proposal would reduce barriers to giving retiring savers the option of annuitizing part of their account balances. Currently, people need to annuitize either the entire balance or none at all. People are naturally wary of annuitizing the entire amount because it leaves them with little in the way of a cash cushion for emergencies. By choosing to annuitize part of the balance, people can retain a lump sum for emergency or other purposes.

A second proposal would remove a technical impediment to using longevity annuities, an annuity that is typically purchased close to retirement but does not begin to pay benefit until the retiree reaches age 85 or a similar age. Longevity annuities enable retirees to manage their money for a set period of time, secure in the knowledge that the longevity annuity will provide income after that, should they live longer than expected.

The third proposal would allow an individual to begin to partially annuitize their savings well before retirement. Starting to annuitize early by buying small pieces of an annuity over twenty or so years allows the saver to avoid having to make a “once and for all” decision and allows the savers to spread out the interest rate risk over time. This option had been subject to a requirement that the saver get a notarized statement from his or her spouse (if any) concerning whether the annuity covers just the saver or both the saver and his or her spouse. The proposal allows this to be handled by the issuing insurer when payments would begin rather than when purchases begin.

The fourth proposal would apply to relatively rare case where the employer has both a retirement savings plan and a traditional defined benefit pension, and would allow an employee to buy a low-cost annuity through the employer’s DB pension.

These four regulatory changes are positive developments. The changes announced today eliminate unintentional barriers to the use of lifetime income products without dictating how individuals should use them. Some may choose to partially annuitize at retirement, some to use longevity annuities to protect them in later years, and some to begin to buy annuities well before retirement. Whatever the choice, the proposals open up new options to future retirees, and should encourage even more market innovations.

At about the same time, the Department of Labor released final regulations requiring providers to disclose all direct and indirect fees to the employer sponsoring a 401(k) plan. The regulations will add needed transparency on fees that will enable increased competition to produce better results for employers and employees.

Despite removing a required template of charges, the new regulations nevertheless give employers a complete and accurate picture of all charges they have to pay, including indirect fees paid by the provider to others. Currently, many indirect fees are not disclosed even though they may reduce the earnings of participants. Endorsed by industry and consumer groups, the disclosures will enable employers who use this information properly to meet their fiduciary responsibility to choose a responsible fee level. What is even more important, the full disclosure will enable employers to structure their 401(k) plan so that individual savers can get the best returns possible, and not be subject to unreasonable fees.

While much more remains to be done to improve retirement savings plan, the steps taken by the proposed Treasury/IRS regulations and the Department of Labor’s final regulations will help savers to improve retirement security.

The new 2013 budget unveiled by President Obama on Monday again contains the Automatic IRA, which was developed by Brookings' Retirement Security Project in conjunction with The Heritage Foundation. This year's version again includes an important change that will also encourage more employers to offer a 401(k) account to their workers. However, important changes to the Saver's Credit, which had been in previous budgets failed to make it this year.

Nearly half of American workers - an estimated 78 million- currently have no employer-sponsored retirement savings plan. The Automatic IRA is a simple, easy to administer and understand system that is designed to meet the needs of small businesses and their employees. Employers facilitate employee savings without having to sponsor a 401(k)-type plan, make matching contributions or meet complex eligibility rules. Employees are enrolled automatically into an IRA with a simplified system of investment choices and a set automatic savings level. However, they retain complete control over all aspects of the account including how much to save, which investment choice to use, or even to opt out completely. Automatic IRAs also offer savings options for the self-employed, for independent contractors, as well as providing those who are changing jobs the ability to continue their retirement savings.

The new 2013 budget would also double the size of the tax credit that employers receive in return for starting a new 401(k) plan from $500 annually for three years to $1,000 annually for the same period. This increase will ensure that the credit covers more of an employer's costs, and should encourage more employers to offer such a plan. This is a very good move, but the credit could be still further expanded to $1,500 for three years as will be proposed by a new House bill coming from Rep. Richard Neal. As Congress examines the proposal, it will have the opportunity to also expand the smaller credit that would be offered to employers that start an Automatic IRA to ensure that they are fully reimbursed for all expenses connected with starting and operating such an account for their workers.

A disappointing development is the failure to again include proposals to expand and improve the Saver's Credit by making it fully refundable. The Saver's Credit is an incentive for middle-and lower-income taxpayers to save in 401(k)-type accounts or IRAs. Retirement Security Project research found that more than 69 million taxpayers had income that was low enough for them to be eligible for the Saver's Credit in 2007. However, nearly 45 million of these filers actually failed to qualify for the credit because they had no federal tax liability. If the Saver's Credit was made refundable as RSP has proposed and deposited directly into the account as a match for savings, those 45 million taxpayers could have taken advantage of the program and had significantly higher retirement savings.

Editor's Note: this article originally appeared in the 2012 Print Version of AARP: The Journal.

Using one platform to offer a variety of services

Known in the UK under the term “corporate platform” to indicate that it expands options available on the employer’s benefit platform, the development allows employees to use the employer’s retirement savings mechanism to save and invest for additional nonretirement purposes. When the corporate platform is fully implemented, employees will be able to man­age almost all of their investments and savings plans from one location, thus giving them a con­solidated view of their entire financial status. If carried to its full potential, the expanded saving platform will allow employees to shop for sav­ings products, among options that are available on the platform, instead of having to seek them out from individual suppliers—a search that often takes up work hours. Of even greater value, it gives employees one source to go to for indi­vidualized advice or financial literacy training.

The enhancement has special significance in the UK, where by fall 2012, the larger employers that don’t offer any other type of pension or retirement savings plan, must begin to automatically enroll their employees into basic retirement savings accounts. This requirement is causing a great deal of discussion about the future role of employer-provided benefits, as well as recon­sideration of the fees and services included in a traditional package. The platform enhancements allow an employer to differentiate its employee benefit package from the required basic account structure. It also gives younger employees a benefit of more immediate value, than they would have from a retirement savings account that they won’t access for a good 40 years.

Presentations from a variety of service providers at an October 2011 summit hosted by Pensions Insight, a UK trade journal, showed that the platform can be easily customized to meet the special needs of a specific workforce. Using a single computer interface, employees can select from a wide variety of savings and investment options that are appropriate for their income level and stage of life. Thus, an upper income manager who manages his or her own finances could see more sophisticated products, while an entry-level worker sees more basic sav­ings products. Live presentations by financial professionals who explain what is available on the computer platform add to the system’s value and increase its use.

A place to provide choice and to build financial literacy

The platform will have special value for moderate- and lower-income employees. While higher salaried employees may appreciate the opportunity to build their investments, the real value of the platform will be to enable moder­ate- and lower-income workers to find savings opportunities that they might otherwise miss because they don’t know where to go, are uncertain about what is a fair price, or for a variety of other reasons. Because employees tend to believe that services included on the corporate platform are implicitly endorsed by the employer, they usually have greater faith that the services are from legitimate providers at a fair price.

Employees at all levels can also use the site to receive guidance on individual products or basic financial literacy training. Individuals can choose from a range of options, from short videos on a specific topic by experts or fellow employees, to longer connected courses designed to meet the needs of specific age or income groups. Use is increased when employ­ees receive emails or text messages geared to birthdays or other life events, or generated after the employee visits a specific part of the website.

Understanding the value of peer evaluations to motivate others, some providers include a place where employees can post feedback about spe­cific products or savings choices. These postings help to guide other employees’ decisions and build the reputation of the platform as a source of unbiased information. The site can also include links to outside advisors who can answer specific questions, guide employees to another site for more information, or perform other services either online or over the telephone.

Differing age groups can be contacted and guided through different technologies. At the UK platform summit, David Harris, of Tor Financial Consulting, showed that younger employees preferred different communication methods than either older workers or the usual way employers provide information. However, the platform is able to use a wide variety of methods and is equally effective no matter which is used.

The platform’s value to international policy makers

Although the UK’s platform is intended as an enhancement to employer-provided benefits, it can also be used for a wide variety of policy goals, as the basic structure can be easily adapted to meet almost any nation’s specific tax and savings system. In the United States alone, policy experts have proposed dedicated savings accounts for nonretirement purposes ranging from unemployment benefits and retraining, home purchases, health care, and long-term health care coverage, to repaying student loans or building college balances for children or grandchildren. However, if all of these various accounts were established and funded, it is doubtful the employee would have any money left for food, clothing, and shelter.

Rather than having a host of specific savings programs, employees may be better served by more flexible accounts usable for a variety of purposes, as outside developments or chang­ing needs dictate. The platform concept would allow individuals to choose which purposes they need to save for and how much to save for each. Combined with targeted guidance or education, this structure could expose individuals to pos­sibilities they might not have considered before.

The structure is ideally suited to employment situations, but it could also be used by the self-employed or by consultants at sites aimed specifically at them and sponsored by trade associations, unions, or even government agen­cies. While their circumstances may preclude payroll deductions, the same products could be offered through direct debits to bank accounts.

The added value of nudge

The flexibility of the platform allows it to be used by employees with all levels of financial sophistication, but new participants would benefit from a variation on automatic enroll­ment that places certain amounts, in addition to the retirement savings amount, into a general savings account or similar vehicle. The automatic savings amounts deducted need not be large, and where the law allows, could vary according to employee age, with a larger proportion of the overall deduction going to nonretirement purpose for younger employees and to retirement for older ones.

As with automatic retirement enrollment, the employee would have the ability to vary amounts, divide the total among various accounts, and even stop all future contributions. However, automatic enrollment would offer workers direct experience with the nonretire­ment side of the platform. By varying enrollment in various accounts according to employees’ age, automatic enrollment could encourage them to consider saving for various purposes, such as a first home, college tuition for children, or additional health services.

Improving retirement security

Although the platform is applicable to a wide variety of other uses, its primary purpose is to build retirement security. Before retirement, the platform helps employees understand how to save, what they have, and how much more they need for a comfortable lifestyle. The other savings provide funds that can be used in the event of an emergency, thus helping to reduce leakage from retirement accounts in countries that allow early access to that money. At retire­ment, the platform helps individuals to see what other assets are available, and what loans or other liabilities must be factored in. In the UK, it is also being used to encourage individuals to use annuities and add them to their invest­ments. The UK experience can help to guide US policymakers in their efforts to increase the use of similar products.

The enhanced information and flexibility of the corporate platform should help individuals to better understand their finances and how to meet their goals. It moves retirement savings plans from a minor part of employees’ financial lives, to a central feature that has many more uses than just an event many years in the future. This promotes regular use of the platform, and a fuller understanding of what is necessary for a comfortable retirement.

Many American households do not save for retirement. Those that do save often contribute too little, invest poorly, or withdraw funds early. These patterns leave households, particularly low- and middle-income households, vulnerable to insufficient savings to finance adequate living standards during old age and retirement.

This research report proposes retirement saving reforms designed to help boost saving among low- and middle-income households. These 11 proposals are grouped under five themes: (1) making saving easier, (2) making saving more rewarding, (3) strengthening the market infrastructure for saving, (4) providing private information to savers, and (5) improving public education for saving.

Download the full report at aarp.org »

Event Information

Australia's mandatory Superannuation Guarantee requires its citizens to save at least 9 percent of their income towards retirement. In many Asian nations, economic growth has spurred reexamination of pension systems to meet the needs of rapidly evolving societies. Would a mandatory savings plan be more effective than the current U.S. voluntary system? How have Asian nations have restructured their pension systems to deal with legacy costs? And what can Americans learn from the way Australia uses both employer and employee representatives to shape investment choices?

On September 17, the Retirement Security Project at Brookings and the AARP Public Policy Institute hosted a discussion of what the United States might learn from retirement savings systems in Australia and Asia. Opening speakers included Nick Sherry, who helped shape the Australian system as a cabinet minister and ran a Superannuation fund in the private sector, and Josef Pilger, an advisor on pension reform to both the Malaysian and Hong Kong governments and many industry providers. Steve Utkus, David Harris and Benjamin Harris, retirement experts from both the United States and the United Kingdom, considered how reforms in Australia and Asia can shape the American debate and whether this country should adopt key features from those foreign systems.

Audio

• Retirement Savings in Australia, Asia and Beyond: What are the Lessons for the United States?

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• 20130917_retirement_savings_transcript

In this year’s State of the Union Address, President Obama announced a new retirement savings account for workers whose employers do not offer any form of pension or savings plan. He also promoted the Automatic IRA, a retirement savings plan that originated at the Retirement Security Project and has been in the Administration’s budget for several years.

Only about half of workers has access to a retirement savings plan at work. Millions of Americans lack the ability to save at work via payroll deductions. And while these individuals could in theory save on their own in an IRA, the best estimate is that only about one in twenty eligible to contribute to an IRA actually do so on a regular basis.

To help solve this problem, the President announced the creation of My Retirement Account, or “MyRA.” Similar to the R-Bond discussed in a recent AARP Public Policy Institute paper written by William Gale, David John and Spencer Smith, MyRA would allow individuals to save in a government bond account similar to the one offered as an option to federal employees through the Thrift Savings Plan. The details are unclear (there’s a WhiteHouse fact sheet here), but MyRA would allow new savers and those with small balances to accumulate retirement savings without either having to pay administrative charges or face market risk. Employers would not administer the plan or have any fiduciary responsibilities related to the accounts. Importantly, too, contributions come from employees, not employers. The plan is meant to build off of existing institutions—payroll deduction, Roth IRAs, the G-fund in federal employees’ thrift saving accounts. And it is meant to supplement, not substitute for, 401(k) and other company-based retirement plans. It accomplishes the latter by only allowing contributions up to the IRA limit, by limiting investment choice, and by having people with more than a set balance move into a regular account.

This approach is a boon to those who can only afford small contributions to retirement accounts. Private sector funds often require minimum contributions that are out of reach of low-income savers or assess high fees to offset their costs.

The key questions are whether employers will participate and whether automatic enrollment (that is, a regular contribution on behalf of all employees who do not opt out) would be allowed for MyRA accounts. Research suggests that automatic enrollment would greatly boost the number of employees who participate.

President Obama also promoted the Automatic IRA, but that would require congressional action, something that has not happened so far. Because the Automatic IRA would require employers with more than 10 employees to offer retirement accounts, it would likely dramatically increase the number of workers who save for retirement. It would also give employees a greater choice of investment options and serve as a permanent retirement savings plan, rather than a starter account like MyRA.

With Tuesday night’s mention of both proposals, the president made retirement security a priority. Both proposals would allow workers to build economic security through their own efforts and promote the kind of values and self-reliance that both sides of the political spectrum find attractive.

Thank you for allowing me to testify before you today on the need to improve retirement savings opportunities for employees of private sector small businesses and ways to structure such an effort.

I am David John, a Senior Strategic Policy Advisor in AARP’s Public Policy Institute, AARP’s internal think tank. In addition, I am a Deputy Director of the Retirement Security Project at the Brookings Institution. Before I joined AARP last year, I was a Senior Research Fellow at the Heritage Foundation for almost 15 years.

My testimony this afternoon will focus on three areas: first, that there is a very real and growing retirement security problem in the United States; second, that the existing products and efforts are not resolving this problem; and third, that there are some approaches that Oregon could take that are compatible with existing law and would help future retirees to have a more comfortable retirement. These proposed actions would also help both your state and the country as a whole avoid the high costs of doing nothing. Let me be clear from the start that simply talking about increased education is not enough. This is a problem that will require action to improve.

The Problem Facing Us

Oregon and our nation face a serious problem if a large proportion of our workforce remains unable to save for retirement through an employer-related payroll deduction plan. This situation affects both those approaching retirement and those who are just starting their careers. However, older workers may have much higher access to defined benefit plans, and thus be much better off than younger employees who will have nothing to rely upon other than savings and Social Security.

Social Security is the foundation of retirement security both here and nationwide. In Oregon alone, its benefits keep hundreds of thousands out of poverty, but for most people, Social Security’s average benefit level of about $1,300 a month[1] does not provide enough for a comfortable retirement. That is about $15,600 a year. Economic security requires both Social Security benefits and sufficient additional savings to supplement them.

The lack of savings—and the opportunity to save at work through payroll deduction—is where the problem lies. Various industry groups and columnists have claimed that all is well, and that there really is not a problem. However, on close examination, there are holes in their figures, and they often focus on today’s retirees and those close to retirement, people who are much more likely to have a traditional defined benefit pension plan than younger workers who need to be saving now will have.

Even then, the numbers are not pretty. National data from the non-partisan Employee Benefit Research Institute (EBRI) show that in 2013, 51 percent of workers aged 45–54 had less than $25,000 in total savings and investments.[2] These are people between 10 and 20 years from retirement. Among workers aged 55 and above, those within 10 years of retirement, 43 percent had less than $25,000 in total savings and investments. These household savings numbers exclude home equity and defined benefit pensions (if any). Savings of that amount will not take an individual through one year of retirement, much less the 20 plus years that most healthy 65-year-olds are likely to experience.

Interestingly, the question in 2014 was revised to separate out those with access to an employer-sponsored retirement savings plan or pension and those without.[3] The answers showed once again the value of such a plan and the cost of not having one. About 62 percent of employees with access to a retirement saving plan through their employer had more than $25,000 saved, and 22 percent had $100,000 or more. However, 94 percent of those without access to such a plan had under $25,000 in total savings and investments, and only 3 percent had $100,000 or more.

Just to place these numbers in perspective, any amount of retirement savings is certainly better for a retiree than no retirement savings at all, but it takes a significant amount gradually built over a long period of time to build a significant level of financial security. Retirement savings of $100,000,[4] a sum that only 30 percent of the workers age 45–54 and only 42 percent of those age 55+ in the EBRI survey will equal or exceed, buys additional monthly income of $589 ($7,100 annually) for men at age 65 and $552 a month ($6,600 annually) for women at that age.[5] That would give men with $100,000 in retirement savings and average Social Security benefits a monthly retirement income of about $1,800 ($22,700 annually) and women with the same savings and Social Security benefits a monthly income of $1,750 ($22,200). Neither figure is likely to produce a comfortable retirement, and the EBRI data suggest that even that is out of reach for well over half of all Americans.

Admittedly, these are rough numbers, and many people will receive higher-than-average Social Security benefits. However, many other people will end up receiving much less than average. We know from other research that five groups are most likely to undersave: small business employees, lower-income individuals, women, younger workers, and members of minority groups. However, the problems are not limited to just these five groups. By the way, the recent column by Robert Samuelson[6] that repeats industry assurances that all is well cited the Investment Company Institute (ICI) as saying that the median value of IRA and 401(k) accounts held by people aged 55–64 is $100,000.[7] If that is true, then half of all those with such accounts would have annual retirement incomes equal to or less than the $22,000-plus level I just mentioned if they receive average Social Security benefits.

To make matters worse, when calculating the average amount in such accounts, researchers usually exclude those who have no account at all. In the case of the ICI data Samuelson cites, it appears that approximately 25 percent of households aged 55–64 did not have either a 401(k) or an IRA. They face an even worse future.

How can industry researchers present the existing retirement system as working very well? The answer is by using selective statistics. As an example, the EBRI study includes a question asking how many employees have saved for retirement.[8] The answer for 2013 is 66 percent of all workers and 74 percent of those aged 55 to 64. If one stopped there, the picture would look very good. It is only when one digs in deeper and asks how much they have saved that the true problem becomes evident. Similarly, other studies[9] that show no serious problem focus on today’s retirees, who had much more access to a traditional defined benefit pension than tomorrow’s retirees will. While many of today’s retirees are comfortable, their success does not imply that younger workers will automatically have the same future.

Access to Workplace Savings Is Essential

It is not that people do not want to save or cannot save. They do. The problem is often the lack of access to a convenient savings plan, and the inability to understand the many savings options that exist.

The existence of a workplace retirement savings plan is important. A recent Boston College Center for Retirement Research paper[10] found that access to a workplace retirement savings plan or pension is second only to having a job as the most important factor in assisting moderate- to low-income individuals to build retirement security. A wide variety of research shows that only about half of the U.S. workforce has the ability to save for retirement or has a pension at work. While there are a variety of data sources, each with its own strengths and weaknesses, another Boston College study[11] found that the coverage statistics are comparable between data sources when the same standards are applied. This included a study of IRS records[12] that appeared to show otherwise.

Regardless of the exact percentage point used to estimate coverage, the sad fact is that millions of Americans currently lack the ability to save for retirement at work through payroll deduction. This is especially true for small business employees. A recent U.S. Government Accountability Office (GAO) study[13] found that only about 14 percent (one in seven) of businesses with 100 or fewer employees offer their employees such a plan, and that between 51 percent and 71 percent of the roughly 42 million people who work for a small business lack the ability to save for retirement.

PPI research shows that about 642,000 Oregonians between the ages of 18 and 64—about 47.6 percent—are employed by a company that does not offer a pension or retirement savings plan.[14] The Oregon number is slightly better than the 51.1 percent national figure. That translates into 57 million Americans who are employed by the private sector and cannot save for retirement at work. These are not just younger employees who are new to the workforce. They include midcareer individuals who move from a large company that offered a retirement plan to a smaller company that does not. Often, these midcareer workers end up with a gap in their savings history that damages their ability to build economic security.

The Need for Better Coverage Is Widely Acknowledged

AARP is certainly not the only organization to recognize the need to increase the number of people able to save for retirement through a payroll deduction plan or account. Here, in Oregon, the Retirement in Reach Coalition[15] is a broad-based collection of business, professional, labor, and civic groups that have come together to help more Oregonians to save.

Nationally, a number of organizations, including many prominent research institutions, have written about the number of people who lack the ability to save for retirement and the need to improve coverage. Please note that these organizations do not necessarily support any specific solution or, indeed, any solution at all. However, all have written about either the need to expand coverage or how retirement security would be improved through greater coverage. As an example, Putnam Investments CEO Robert L. Reynolds has written about the need to improve the ability to save in a short paper titled “Three Steps that Could Shore up Retirement.”[16] The paper noted that “today—two years since the first boomers turned 65—the Employee Benefit Research Institute estimates that 49% of American workers are still ‘not confident at all’ or ‘not too confident’ about having enough money in retirement, 57% of pre-retirees have less than $25,000 saved for the future, and 32% of all workers do not have access to a retirement saving plan at work.”

The paper’s Step Two was: “Access to workplace savings for all workers. Any worker paying FICA taxes should have access to a retirement savings plan at work.”

Other organizations that have either issued papers or made statements about the number of people who lack an employer-sponsored retirement savings or pension plan include the following: the Brookings Institution’s Retirement Security Project,[17] the New America Foundation,[18] the Aspen Institute,[19] the U.S. Chamber of Commerce,[20] the Heritage Foundation,[21] and the Urban Institute.[22]

Again, this is not to imply that any of these organizations endorse any approach that Oregon might decide to take on retirement savings or that they support any part of my testimony. I mention them solely to show that concern about limited opportunities to save for retirement is widespread.

Those without an Employer-based Plan

In theory, everyone without an employer-based plan could save in an IRA, but EBRI research estimates that only about 1 out of 20 actually does so regularly.[23] In addition, payroll deduction is viewed as very important for encouraging retirement savings by people at every income level[24]. Overall, 61.5 percent of those surveyed in the EBRI 2011 Retirement Confidence Survey said that payroll deduction was very important for encouraging them to save for retirement, and another 27.8 percent said that it was somewhat important. Together, 89.3 percent said that it was either very or somewhat important. Further, the survey also found that a significant number of those currently saving would either stop or reduce their saving if payroll deduction was not available. It is much easier for people to save regularly if their savings are deducted from their paycheck before they receive it. Otherwise, the press of immediate bills tends to crowd out savings for longer-term goals.

Another factor in the extremely low savings rate among those who can use only an IRA is availability and trust. Especially in low-income neighborhoods, there are often no financial institutions nearby other than check-cashing outlets. Low-income individuals are often reluctant to go to financial outlets in other areas as they may feel that they are not welcome or that they will be treated poorly. Another drawback that applies to individuals of all income levels is the fear that they will be taken advantage of. Because financial professionals will know much more about the subject than their potential customers and may use unfamiliar terms, people have a very real fear that they will be talked into something that benefits the financier rather than the saver.

In addition, behavioral research shows that when people are faced with an important decision where they are uncertain what to do, they do nothing. This inertia factor is especially present in financial decisions like retirement savings.

These are reasons why an approach that focuses solely on additional education is extremely unlikely to succeed. Such an approach does nothing to increase the number of local financial outlets or opportunities to save. In addition, such financial literacy training often uses the same complex terms that potential savers find confusing. There is a value to training, but only in addition to expanded access to retirement savings.

On the other hand, when employees are presented with a plan at work that is structured in a way that provides guidance, they take the opportunity to save. This is true at all income levels. The Boston College study on why lower-income people are less likely to save that I mentioned earlier[25] showed very similar take-up rates between income levels. Eighty-six percent of those with incomes under 300 percent of the poverty line participated in a retirement savings system or pension if they were offered one and were eligible, compared to 95 percent of those with higher incomes.

Existing Products Are Not the Solution

Opponents of a state-sponsored retirement savings effort often cite the number and kind of existing products that are currently available to small businesses. A joint IRS/U.S. Department of Labor publication[26] lists seven types of retirement savings plans that are currently available. Unfortunately, most of them are both expensive and complicated or require the employer to make a contribution. Only one that is not widely available really enables small businesses to offer their employees an opportunity to save without saddling them with high costs or requiring savings.

Both the traditional 401(k) and the automatic enrollment 401(k) are excellent solutions for employers who are willing to offer them. However, the GAO found[27] that smaller employers can pay much higher administrative costs than those paid by larger employers. In addition, they can be complicated and require employers to play a more active role than many are willing to do.

Three other plans, the SEP IRA, the SIMPLE IRA, and the safe harbor 401(k), are either totally financed by employer contributions or require employers to make contributions. In addition, another of the seven options—a profit-sharing plan—is both completely financed with employer contributions and doesn’t require regular funding. While this plan does allow for profit sharing in good years, it does not necessarily include regular contributions that an individual can use to finance a retirement income.

The seventh type of retirement savings account available to small businesses is the payroll deduction IRA. It does not require (or allow) any employer contribution, or saddle the employer with complex regulatory burdens or impose significant costs. All the employer has to do is make it available to employees, deduct the contributions from their paychecks, and then send it to the financial provider. Unfortunately, it is not widely available or sold, as it offers financial services companies only limited income potential. Oregon can help to change that situation.

Another type of retirement savings tool, MyRA, was announced in President Obama’s January State of the Union speech. MyRA has some very positive features,[28] but it is not a solution or a substitute for anything Oregon might decide to do to help more people to save for retirement. A key weakness is that an individual can only have a maximum of $30,000 in MyRA. That is not nearly enough for any appreciable improvement in financial security. Second, MyRA savings will be deposited only in government bonds. While that investment is completely safe, it does not allow any real investment growth. An individual with just a MyRA is likely to get little more than the inflation-adjusted amount they contributed.

Why Oregon Should Be Concerned about This Problem

This is a state problem because doing nothing will mean higher state and local taxes for your children and grandchildren. Low-income retirees will need state and local services financed by state and local taxes for health care, housing, senior centers, and a host of other services. As Oregon ages and the baby boomers retire, the demand from this population for additional state government services will only grow. However, there is a simple, low-cost alternative to taxpayer-funded government services.

What Oregon Can Do to Help

The statute that created the Oregon Retirement Savings Task Force includes the limitation that you cannot recommend anything that might be contrary to the federal Employee Retirement Income Security Act (ERISA). Some would have you believe that this limits you to proposing additional employee education. This is not the case.

While ERISA as it is currently written does limit Oregon’s options, there are still avenues open to the state that would help to directly increase the number of Oregonians who can save for retirement at work. Oregon could still sponsor a payroll deduction IRA[29] that could be available at low cost to every resident of the state who is not currently covered by another retirement savings or pension plan. Such an account could be available through either state-managed investments or one or more private sector providers chosen and monitored by a state agency.

The state, the employer, or any private sector provider would not be responsible for the performance of the savings, and there would be no promised retirement benefits. All of the savings would come from and be owned exclusively by the individual saver. It would be up to the saver to monitor his or her eligibility and compliance with contributions rules. The small costs of such a program could be paid out of fees assessed on the accounts, or the start-up costs could be subsidized by the state.

A key fact is that the only liability faced by the employer would be to collect and forward individual contributions to the provider or agency on a timely basis. In theory, such contributions could be forwarded using the same schedule as the state currently uses to collect its income tax revenues. Federal law limits the role of the employer to encourage its employees to save for retirement through providing general information about the payroll deduction IRA program. The employer is also allowed to answer any questions about the program or to refer them to the IRA provider and provide any informational materials written by the IRA provider, as long as no endorsement by the employer is provided. At all times, the employer must remain neutral about the provider.

This is not a perfect plan, and it does not include features that many who support increased access to retirement savings would like to see. However, we believe that such a plan would be legal and, if combined with an educational program, could increase retirement savings among Oregonians. As federal law either changes or is reinterpreted, additional features and services could be added. This would be a starting place, not a final destination.

Automatic Enrollment

At this point, any Oregon plan would probably not require the use of automatic enrollment. However, as both state and federal law evolve, it would be helpful to explore encouraging that feature in any retirement savings plan. Under automatic enrollment, an employee continues to have total control over his or her retirement savings decisions, but unless the employee decides otherwise, he or she is enrolled and saves a set percentage of income in a specific investment choice. Automatic enrollment uses behavioral economics to make inertia work for the employee. These features work. The five groups mentioned earlier that are most likely to undersave (women, younger employees, small business employees, lower-income employees, and minority groups) all see their participation rates climb from very low levels to close to 90 percent.

And employees like automatic enrollment. A 2007 survey[30] of automatically enrolled workers showed that 95 percent found that it made saving easy. Eighty-five percent started to save earlier than they would have without it. Almost all of the employees who were automatically enrolled and remained in the plan said that they were satisfied with the process (97 percent) and were glad their company offered automatic enrollment (98 percent). Even those who were automatically enrolled and decided not to save liked the feature, with 90 percent being satisfied with the process and 79 percent being glad their company offered automatic enrollment.

Conclusion

Again, thank you for allowing me to testify today. Improving the ability to save for retirement through the increased availability of payroll deduction savings would address a real need both here in Oregon and nationwide. From a policy standpoint, an active program that increases the access that small business employees have to payroll deduction retirement savings plans would help the nearly 650,000 Oregonians who don’t currently have such an opportunity. It would enable them to build economic security through their own efforts.

BEST PRACTICES:

• A universally available payroll deduction IRA that is available to any Oregonian who currently lacks an employer-provided retirement savings or pension plan.
• A very short list of available investments that includes both a stable value fund and a balanced or target date fund. New savers would go into a previously designated investment unless they chose otherwise. Savers wishing other investments would be able to find other IRA accounts.
• Regular statements that clearly indicate investments, earnings, fees, and account balance. A number indicating the monthly retirement income that such a plan could produce if the current amount is saved would be very helpful.
• A coordinated statewide education program that explains the accounts and how to use them as well as the value of saving for retirement.
• Financial literacy classes in every school.

Event Information

Seven years ago, New Zealand recognized that if its people did not have sufficient assets as they aged, they would either face economic stress in retirement or place pressure on the government for costly additional benefits, and thus the KiwiSaver program was born. Designed to help citizens build retirement security, it guides individuals with limited financial experience while also giving them complete control of their finances. Benefits of this national automatic enrollment retirement savings plan include a $1,000 kick-start, employer contributions, and an annual tax credit. New Zealand Since its inception in July 2007, KiwiSaver has been deemed a great success, with over half of the eligible population as members, and over 70 percent of 18-24 year olds participating. Although membership continues to grow, it is at a slower rate than that seen in previous years.

Could the success of KiwiSaver mean that a similar program – at either the national or state level – might work here? On July 8^th, Diana Crossan, former Retirement Commissioner for New Zealand, will offer her insights into the KiwiSaver program and its impact on New Zealand saving, retirement security, and financial literacy. Ben Harris and David John, deputy directors of the Retirement Security Project at Brookings, will reflect on the role such a program might play in the U.S.

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Editor's Note: This blog originally appeared on AARP's Thinking Policy blog

Automatic enrollment for retirement saving is both effective and popular among all income, gender and ethnic groups. It has increased participation, helped people to both start saving earlier and to make appropriate investment choices.This mechanism would be even more useful, especially for younger workers and those with low-to-moderate incomes if retirement savings plans also allowed employees to save for unexpected expenses. Recent research by the US Financial Diaries Project, which looks at the actual income flows of low-to-moderate income consumers shows why this feature would be valuable.

Their studies found that low-to-moderate income households are saving for near-term small emergencies. However, those situations happen so often that they prevent households from building up higher savings for larger emergencies. A split auto enrollment plan would help them to have money for those bigger problems.

One way to structure such a plan would be to automatically enroll an employee into a saving program where part of the contributions would go to a regular 401k-style retirement saving account and the rest into a passbook savings account at a federally insured bank or credit union. The emergency savings could be a percentage of the total contribution or based on income levels, such as a percentage of contributions on the first $20,000 of annual income. Auto escalation would apply only to the retirement contributions.

Some will correctly argue that the split reduces potential retirement savings, but it also potentially reduces leakage from those accounts. When an unexpected expense arises, workers will have other savings that they can use instead of dipping into their retirement accounts.

As with all automatic enrollment plans, the saver would have complete control, and could choose to save more or less, change where the savings go, or even to not participate at all. If the employee already has a passbook account, he or she could either direct all contributions to the retirement account or send the passbook money to the existing account instead of a new one.

Savers would receive whatever tax benefit their plan type offers for retirement contributions, but they would not receive any additional tax advantages for the passbook balances. They could withdraw money from the passbook account at any time without any penalty. And those balances would earn whatever interest rate the bank or credit union is paying on passbook accounts.

Because the passbook account feature is under the legal framework of a retirement plan, it would be appropriate that no more than half of the total contribution would go into general savings. In addition, a plan should be required to set its base contribution rate at 6 percent of income before it could offer such a feature. The passbook savings are intended to supplement retirement contributions, and not to replace them. And if the employer matches savings, that amount would go into the retirement account.

This type of split is possibly legal already, but there are technical issues that need to be considered. The 2006 Pension Protection Act eliminated any state legal barriers for automatic enrollment into a retirement account. It may be that federal regulators could interpret that provision as applying also to passbook amounts as the split savings is a feature of the retirement plan. If not, then legislative action would be needed. Certain provisions of the PATRIOT Act may also need to be revised.

And to encourage employers to offer such an account, regulatory burdens should be kept to a minimum. An employer would be considered to have met its responsibilities for picking an appropriate product under the federal Employee Retirement Income Security Act if it chooses a simple passbook account at any federally insured bank or credit union. Adding an automatic enrollment passbook savings account could make 401k-type retirement accounts even more valuable to new and low-to-moderate income savers. Retirement would always remain the primary reason to save, but the split contribution would make a 401k more attractive and help to build a general savings habit.

Introduction

Many American workers do not have access to employer-sponsored payroll deduction plans for retirement saving. Groups with low rates of access include younger workers, members of minority groups, and those with low-to-moderate incomes. 1 Small business employees are especially at risk. Only about 14 percent of businesses with 100 or fewer employees offer their employees a retirement plan, leaving between 51 and 71 percent of the roughly 42 million people who work for a small business without access to an employer-administered plan (Government Accountability Office 2013).

Lack of access makes it difficult to build retirement wealth. A study by the Employee Benefit Research Institute (2014) shows that 62 percent of employees with access to an employer-sponsored plan held more than $25,000 in saving balances and 22 percent had $100,000 or more. In contrast, among those without access to a plan, 94 percent held less than $25,000 and only three percent hold $100,000 or more. Although workers without an employer-based plan can contribute to Individual Retirement Accounts (IRAs), very few do.2 But employees at all income levels tend to participate at high rates in plans that are structured to provide guidance about the decisions they should make (Wu and Rutledge 2014).

With these considerations in mind, many experts and policy makers have advocated for increased retirement plan coverage. While a national approach would be desirable, there has been little legislative progress to date. States, however, are acting. Three states have already created state-sponsored retirement saving plans for small business employees, and 25 are in some stage of considering such a move (Pension Rights Center 2015). John and Koenig (2014) estimate that 55 million U.S. wage and salary workers between the ages of 18 and 64 lack the ability to save for retirement through an employer-sponsored payroll deduction plan. Among such workers with wages between $30,000 and $50,000 only about one out of 20 contributes regularly to an IRA (Employee Benefit Research Institute 2006).

This paper highlights a variety of issues that policymakers will need to address in creating and implementing an effective state-sponsored retirement saving plan. Section II discusses policy design choices. Section III discusses management issues faced by states administering such a plan, employers and employees. Section IV is a short conclusion.

Note: this paper was presented at a October 7, 2015 Brookings Institution event focused on state retirement policies.

Downloads

• Download the paper

In recent weeks, the Obama Administration has taken the two most important steps in nearly a decade to increase access to retirement savings for more than 55 million Americans who currently do not participate in a retirement saving plan.

The Treasury Department's myRA program, launched this month, will help new savers and the self-employed start accounts without risk or fees. And earlier this week, the Department of Labor clarified rules that will make it easier for states to create retirement savings plans for small business employees.

myRA

The new myRAs provide another way for new savers to build small nest eggs. They will also help consultants, contract employees, and part-time workers save for retirement or for emergencies. 

For employees, myRAs are payroll deduction savings accounts designed to meet the needs of new savers and lower income workers.  They have no fees, cost nothing to open, and allow savers to regularly contribute any amount.  Savings are invested in US Treasury bonds, so savers can’t lose principal, an important feature for low-income workers who might otherwise abandon plans if they face early losses.  Those who are not formal employees and thus lack access to an employer-sponsored plan can participate in myRA through direct withdrawals from a checking or other bank account. 

As the growing “gig economy” creates more independent workers, the myRA will be a valuable entry to the private retirement system.  These workers might otherwise retire on little more than Social Security. All workers can build myRA balances by redirecting income tax refunds into their accounts. Because a myRA is a Roth IRA (that is, contributions are made from after-tax income), savers can withdraw their own contributions at any time without penalties or tax liability.  

When a myRA reaches $15,000, it must be rolled into another account, and Treasury may make it possible for workers to transfer these savings into funds managed by one of several pre-approved private providers.  MyRAs won’t replace either state-sponsored plans or employer-related pension or retirement savings plans.  However, they will make it possible for new and lower-income savers as well as the self-employed to build financial security without risk or fees.  

State-Sponsored Retirement Savings Plans

The DOL announcement gave the green light to several state models, including Automatic IRAs, marketplace models, and Multiple Employer Plans.  About two dozen states are considering these plans and, so far, Illinois and Oregon have passed “Secure Choice” plans based on the Automatic IRA, while Washington State has passed a marketplace plan.

DOL’s proposed Automatic IRA rules (open for a 60 day comment period) would let states administer automatic enrollment payroll deduction IRAs provided that the plans meet certain conditions for selecting or managing the investments and consumer protections.  States would also have to require businesses to offer such a plan if they don’t already offer their employees a pension or other retirement savings plan. Companies that are not required to offer an Automatic IRA or other plan, but decide to join the state plan voluntarily could still be subject to ERISA. The Retirement Security Project at the Brookings Institution first designed the Automatic IRA, which was proposed by the Administration before being adopted by some states.

In a separate interpretation, DOL allowed states to offer marketplace plans without being subject to the Employee Retirement Income Security Act (ERISA).  These plans are essentially websites where small businesses may select pre-screened plans that meet certain fee or other criteria.  Under the DOL guidance, these marketplaces may include ERISA plans, but states cannot require employers to offer them.   However, if states sponsor a marketplace model, they could also require employers without other plans to offer Automatic IRAs.

Finally, DOL’s rules let states administer Multiple Employer Plans (MEPs), where individual employers all use the same ERISA-covered model plan.  MEPs are usually simplified 401(k)-type plans. Because the state would be acting on behalf of participating employers, it could assume some functions that would otherwise be the responsibility of the employer. These include handling ERISA compliance, selecting investments, and managing the plan.

The Retirement Security Project has issued a paper and held an event discussing ways states could create small business retirement savings plans. The paper is available here and the event is available here.

Together, the two initiatives—the new MyRA and the state-sponsored plans-- could greatly increase the number of American workers who’ll be able to supplement their Social Security benefits with personal savings.

Many American workers do not have access to employer-sponsored payroll deduction plans for retirement saving. Groups with low rates of access include younger workers, members of minority groups, and those with low-to-moderate incomes. Small business employees are especially at risk. Only about 14 percent of businesses with 100 or fewer employees offer their employees a retirement plan, leaving between 51 and 71 percent of the roughly 42 million people who work for a small business without access to an employer-administered plan (Government Accountability Office 2013).

Lack of access makes it difficult to build retirement wealth. A study by the Employee Benefit Research Institute (2014) shows that 62 percent of employees with access to an employer-sponsored plan held more than $25,000 in saving balances and 22 percent had $100,000 or more. In contrast, among those without access to a plan, 94 percent held less than $25,000 and only 3 percent hold $100,000 or more. Although workers without an employer-based plan can contribute to Individual Retirement Accounts (IRAs), very few do. But employees at all income levels tend to participate at high rates in plans that are structured to provide guidance about the decisions they should make (Wu and Rutledge 2014).

With these considerations in mind, many experts and policy makers have advocated for increased retirement plan coverage. While a national approach would be desirable, there has been little legislative progress to date. States, however, are acting. Three states have already created state-sponsored retirement saving plans for small business employees, and 25 are in some stage of considering such a move (Pension Rights Center 2015).

This policy brief, based on John and Gale (2015), highlights a variety of issues that policymakers will need to address in creating and implementing an effective state-sponsored retirement saving plan.

Download "Policy Design and Management Issues for State Retirement Saving Plans" »

Downloads

• Download "Policy Design and Management Issues for State Retirement Saving Plans"
• Download the policy brief

When a new drug is approved in the United States, it is virtually impossible to know all of the risks that a population may encounter when using that product. Even though the U.S. Food and Drug Administration (FDA) requires drug manufacturers to meet rigorous standards demonstrating the drug’s safety and effectiveness for its intended use, once approved, drugs can be used by many more patients than were studied in clinical trials. This may include patients with unique clinical conditions, differing health status, ethnicity, age, or other characteristics which were not well-represented before the drug’s approval. Further, the drugs themselves can be used in different ways and in different settings than were studied. Until recently, FDA did not have the necessary tools and data access to rapidly and consistently track the risks of serious side effects of regulated drugs after approval. Recognizing this challenge, FDA has developed a pilot system to make the best use of available electronic health data using a new data and research network capable of evaluating the safety of medical products in the U.S. 

Authorized by the Food and Drug Administration Amendments Act (FDAAA) of 2007, this pilot is known as Mini-Sentinel, and is part of FDA’s larger Sentinel Initiative. Sentinel was envisioned as a national electronic system to track the safety of regulated medical products, through the use of existing health insurance claims and electronic clinical data that are generated as part of routine care. In the four years since its inception, Mini-Sentinel has made tremendous progress toward developing this system. Mini-Sentinel is comprised of insurance claims and clinical data from 18 participating data-partners, including some of the largest private health plans in the United States. In order to best protect patient privacy, the data from each partner is maintained behind each individual health plan fire-wall. This “distributed data” approach allows a single coordinating center to distribute FDA safety questions in the form of “queries,” to each of the participating data partners to be run against their own data. Aggregated summary results are then sent back to the coordinating center for final analysis. This process allows FDA to access data that can help in addressing safety questions in near real-time.  

Through Mini-Sentinel, FDA has the capability to better understand the safety outcomes using electronic health care data of approximately 169 million covered lives. This accumulation of data represents the capture of 382 million person-years of observation time and billions of prescription dispensings.[1] Examples of the types of safety questions that have already been addressed by Mini-Sentinel include the following:

• Safety concerns with drugs used to treat high blood pressure and the incidence of angioedema;
• Safety concerns with a new diabetes treatment and the incidence of heart attacks; and
• Impact of FDA regulatory actions (i.e. drug label changes) intended to mitigate serious risks of drugs.

The Mini-Sentinel pilot has demonstrated substantial progress and has proven to be a very useful tool for FDA, largely due to the strong partnerships developed between FDA, collaborating academic institutions, and private health plans. However, in order to ensure continued progress and long-term sustainability, it will be critical for progress to continue in several key areas. 

First, continued methods development and data understanding will be necessary to ensure FDA has access to the most innovative tools. The field of pharmacoepidemiology and drug safety surveillance is still young and the continued development of better study designs and analytic tools to quantify risks of serious adverse events, while accounting for many confounding factors that are inherent on observational data, will be critical. Further, as health reforms impact that way health care is delivered and financed (e.g., development of accountable care organizations and increased use of bundled payments), the electronic health data will change. It will be important to focus efforts on understanding how these changes will impact data used for safety evaluations. 

Second, it is clear that Sentinel’s contributions may extend well beyond FDA’s medical product assessments. The tools and infrastructure that have been developed by FDA over the last four years could be used as a platform to establish a national resource for a more evidence-based learning health care system. This system will enable a better understanding of not only the risks, but also benefits and best uses, of drugs in the post-market settings. 

FDA has initiated steps to ensure the long-term sustainability and impact of Sentinel infrastructure and tools. Within the next few years, FDA has proposed that Sentinel be transitioned into three main components: the Sentinel Operations Center, the Nation Resource Data Infrastructure, and the Methodological Resource for Medical Product Surveillance using Electronic Healthcare Databases. FDA has indicated that while the Sentinel Operations Center will continue to serve as FDA’s portal to the distributed database, the Nation Resource Data Infrastructure could potentially be used by other groups to support broader evidence generation. Potential groups with interest in improving our understanding of the impact of medical products and who could benefit from this framework include the National Institutes of Health, the Regan-Udall Foundation, the Patient Centered Outcomes Research Institute, and other possible stakeholder groups, such as the private industry. 

Collectively, these components will ensure that FDA continues to have the tools to engage in medical product surveillance, while ensuring the long-term sustainability of the system. In just four years, the Sentinel Initiative has laid the groundwork to transform how FDA, and the nation, benefits from electronic health care data. This network continues to foster a community of stakeholders committed the evidence generation, which will ultimately contribute to a learning health care system.

For more information on these issues, including discussion by leaders from Sentinel stakeholders, please visit the Sentinel Initiative Public Workshop event page. There you will find archived video, presentations, and further reading.

Video

• New Advances in Medical Records Reflects the Realities of the U.S. Healthcare System

Ron Haskins and Isabel Sawhill were just awarded the 2016 Daniel Patrick Moynihan Prize by the American Academy of Political and Social Science. The honor is presented to “a leading policymaker, social scientist, or public intellectual whose career demonstrates the value of using social science evidence to advance the public good.” In this case, however, for the first time the award was awarded jointly.

Here at Brookings, Belle and Ron have forged a powerful and unique intellectual partnership, founding and elevating the Center on Children and Families and producing world-class work on families, poverty, opportunity, evidence, parenting, work and education, and much more besides.

The Association highlighted Belle and Ron’s bipartisanship. This was appropriate, given that the two have different political backgrounds, and work with people across the political spectrum. The skills and attributes they display in order to work in this way are:

1. Deep respect for the views of others regardless of their politics.
2. Reverence for the evidence and for the facts.
3. A willingness to adapt their views to the facts, rather than (as so often in this town), the other way around. This has been true even when it has made their life more difficult with people on “their” side of the political spectrum.
4. A desire to work hard to bring ideas to bear on public policy. The point is to do good work, but also to have real impact.
5. An insatiable intellectual curiosity to find out more, push new boundaries, and to keep learning. (Both of them have new books out, of course.)

These attributes, when you think about it, are those every decent scholar should aspire to. Belle and Ron have shown us that the skills for bipartisanship turn out to be essentially the same skills as those required for good scholarship.

In his remarks at the Prize lecture, Ron focused on the rise, importance, and prospects for evidence-based policy. Ron has tackled this subject at book length in Show Me the Evidence. Here is part of what Ron had to say:

“Perhaps the most important social function of social science is to find and test programs that will reduce the nation’s social problems. The exploding movement of evidence-based policy and the many roots the movement is now planting, offer the best chance of fulfilling this vital mission of social science, of achieving, in other words, exactly the outcomes Moynihan had hoped for. Today, evidence-based policy rests on the mighty oak of program evaluation in general and the random assignment study in particular.”

Ron highlighted the growth of Pay for Success programs, the Obama administration’s emphasis on evidence-based initiatives, and the creation of the Ryan/Murray Commission on Evidence-Based Policy.

Ron argued that it was right to be skeptical about the likely impact of any particular intervention. But this is not to say that policy doesn’t work—just that some policies work, others don’t, and it good to know the difference. In his slides, Ron lists some programs that have been shown to have demonstrable, sustainable impact—what he described as “his entry in the evidence-based policy sweepstakes.”

But there are plenty of challenges ahead, including the need to improve our understanding of implementation; and the following critical question: “When a program fails, what’s next?” Ron argued that the answer should not be to simply pull the funding, but to work on improving performance.

Belle highlighted the work captured in her latest book, Generation Unbound, on how to reduce the damaging rise of unintended pregnancies and births in the U.S. Over 40 percent of children are born outside of marriage, and 60 percent of births to single women under age 30 are unplanned. In the spirit of being faithful to the facts, and focused on what works, Belle showed the costs of unintended pregnancies for poverty, family stability, and opportunity. Child poverty rates have increased, Belle estimates, by about 25 percent since 1970 because of changes in family structure.

So what are the solutions? In the spirit of following the evidence, Belle argued that the goal must be to help people plan for rather than drift into pregnancy, by broadening access to and use of long-acting reversible contraception. The best example is the intrauterine device, or IUD. The risks of pregnancy for women using this method of contraception are very much lower than for condoms or the pill: 

A fact-based analysis of a problem, followed by an evidence-based approach to solutions: Belle’s work on contraception (sometimes alongside Ron) is a perfect example of bipartisanship, impact-oriented scholarship and a commitment to evidence.

Downloads

• Download Isabel Sawhill's presentation
• Download Ron Haskins's presentation

There is a marriage gap in America. This is not just a gap in choices and actions, but in norms and attitudes. Each generation is more liberal, on average, when it comes to issues like premarital relationships, same-sex marriage, and divorce. But generational averages can obscure other divides, including ideology—which in many cases is a more powerful factor.

Take opinions on the most important prerequisites for marriage, as explored in the American Family Survey conducted earlier this year by Deseret News and the Center for the Study of Elections and Democracy (disclosure: I am an adviser to the pollsters). There is widespread agreement that it is best to have a stable job and to have completed college before tying the knot. But there is less agreement in the 3,000-person survey on other questions, including premarital cohabitation.

In response to the question of whether it is “important to live with your future spouse before getting married,” a clear gap emerges between those who identify as Democrats and those who identify as Republicans. This gap trumps the generational one, with younger Republicans (under 40) more conservative than Democrats over the age of 40:

The importance of family stability for a child’s wellbeing and prospects is well-documented, not least in Isabel Sawhill’s book, Generation Unbound. The question is not whether stability matters, but how best to promote it. To the extent that biological parents stay together and provide a stable environment, it doesn’t much matter if they are married. For children living with both biological parents, there is no difference in outcomes between those being raised by a married couple compared to a cohabiting couple, according to research by Wendy Manning at Bowling Green State University.

But people who marry are much more likely to stay together:

Marriage, at least in America, does seem to act as an important commitment device, a “co-parenting” contract for the modern world, as I’ve argued in an essay for The Atlantic, “How to Save Marriage in America.”

Cohabitation can signal radically different situations. A couple who plan to live together for a couple of years, then marry, and then plan the timing of having children are very different from a couple who start living together, accidentally get pregnant, and then, perhaps somewhat reluctantly, get married.

There is some evidence that cohabitation is in fact becoming a more common bridge to marriage and commitment. First-time premarital cohabiting relationships are also lasting longer on average and increasingly turn into marriage: around seven in ten cohabiting couples are still together after three years, of whom four have married.

In the end what matters is planning, stability, and commitment. If cohabitation is a planned prelude to what some scholars have labeled “decisive marriages,” it seems likely to prove a helpful shift in social norms, by allowing couples to test life under the same roof before making a longer-term commitment. Sawhill’s distinction between “drifters” and “planners” in terms of pregnancy may also be useful when it comes to thinking about cohabitation, too.

Editor's note: This piece originally appeared in the Wall Street Journal's Washington Wire on July 11, 2016. Theresa May has since succeeded David Cameron as UK prime minister.

Theresa May is poised to become Britain’s next prime minister on Wednesday. This means there is a reasonable chance the post-Brexit whirlwind of U.K. politics will quiet somewhat. Here are seven things that stand out about the next PM:

1. Her experience. Ms. May has been in the top ranks of British politics for almost two decades. She is one of the longest-serving home secretaries, overseeing domestic security, law and order, and immigration. With the exception of Michael Gove, who was knocked out early in the contest, she was by far the most experienced candidate in the race.

2. Her resilience. Ms. May is what Americans call a tough cookie. When I was in government, she was the Cabinet minister with whom David Cameron least liked to tangle. When Ms. May said no, she meant no. This did not always lead to perfect policy outcomes, of course. But few in Westminster doubt her strength.

3. Modernizing instincts. As the Conservative Party’s first female chairman, Ms. May pointed out in 2002 that to many voters the Tories were seen as the “nasty party” and that reform was essential. She helped to lay the ground for David Cameron to emerge as a new, more moderate face of the Conservative Party. Ms. May was also one of the first senior Conservatives to back same-sex marriage.

4. She backed Remain. As the only leadership candidate who was on the losing side of the Brexit vote, she is, paradoxically, well-placed to unite the Conservative Party in parliament. Most Tory MPs were, like Ms. May, in the Remain camp. But she was a lukewarm Remainer and has a history of being skeptical of European institutions–including the European Convention on Human Rights–which will endear her to Brexiteers. Already she has made it clear that “Brexit means Brexit” and that she will only trigger Article 50, which governs the process by which an EU member exits, when she has her negotiating position worked out. So far, so good. (Particularly for those worried about market volatility and the U.K. economy in the wake of the June 23 referendum.)

5. Government stability. Given her strong support among parliamentary colleagues, Ms. May is not likely to feel any need to trigger an emergency general election. Instead, she can make the case that the U.K. needs a stable government during the lengthy Brexit negotiations to come (and she’ll be right). Labour politicians calling for an election are whistling in the wind, especially given their own leadership civil war.

6. Gender issues and non-issues. Theresa May is about to become the U.K.’s second female prime minister and there has been refreshingly little commentary on her gender. The only real exception was the row caused by her opponent Andrea Leadsom, who clumsily implied in a recent interview that not being a mother made Ms. May less qualified. (Ms. Leadsom apologized shortly before dropping out of the contest.) If Labour MPs manage to dislodge their leader, Jeremy Corbyn (an outcome that may be decided in court), the favorite to succeed him is Angela Eagle, who is married to a woman.

7. Redressing the class balance. The United Kingdom has been run by posh people, since, well, forever. But David Cameron’s crowd was a particularly upper-crust bunch, mostly educated at private schools. Ms. May, by contrast, went to a comprehensive high school (in American English, a public school). To the extent that there is need for more class diversity among governing elites, this is another piece of good news.

None of this alters the disastrous economic implications of the Brexit vote. But by turning to May, the Conservatives will be better prepared to secure a period of stable government, with a little more class and gender diversity thrown in for good measure. That’s about the best one could hope for.