By 2020, Millennials will comprise more than one of three adult Americans. It is estimated that by 2025 they will make up as much as 75 percent of the workforce.  Millennials’ desire for pragmatic action that drives results will overtake today’s emphasis on ideology and polarization as Boomers finally fade from the scene. Thus, understanding the generation’s values offers a window into the future of corporate America.

Morley Winograd and Michael Hais outline the cultural force of the Millennial generation on the economy as Millennials increasingly dominate the nation’s workplaces and permeate its corporate culture. Winograd and Hais argue that the current culture on Wall Street is becoming increasingly isolated from the beliefs and values of America’s largest adult generation. The authors also include data on Millennials’ ideal employers, their financial behaviors, and their levels of institutional trust in order to provide further insight into this important demographic.

Key Millennial values shaping the future of the American economy include:

• Interest in daily work being a reflection of and part of larger societal concerns.
• Emphasis on corporate social responsibility, ethical causes, and stronger brand loyalty for companies offering solutions to specific social problems.
• A greater reverence for the environment, even in the absence of major environmental disaster.
• Higher worth placed on experiences over acquisition of material things.
• Ability to build communities around shared interests rather than geographical proximity, bridging otherwise disparate groups.

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Editor's note: This blog piece is based on findings from the new book Governance in an Age of Abundance: Experiences from the Extractive Industries in Latin America and the Caribbean, which will be launched at a Brookings public event later today. A Spanish version of this post is available on the Inter-American Development Bank's website. 

The myth of Sisyphus represents in Greek mythology a metaphor for pointless and interminable efforts. Sisyphus was condemned by Zeus to push a huge boulder up a steep hill. Every time he was close to reaching the top, the boulder was made to roll back down the hill and to the starting point, so that Sisyphus had to start all over again, in perpetuity.    

This metaphor may sound familiar to countries rich in natural resources. In many of these countries, citizens have hoped for generations that the revenue derived from extractive industries (oil, gas and mining) would translate into concrete benefits. Instead, rents from extractive industries have frequently been misused, either through wasteful state spending or public and private corruption. In many countries, heavy dependence on revenues from extractive industries has produced economic and political distortions. Also, revenues are all too often centralized at the national level, leaving local communities to wonder about the benefits of hosting extractive industries.

Overcoming the ‘Resource Curse’

The good news is that there are countries that have found a way to overcome the so-called "resource curse." In Norway, for example, the revenue deriving from the extractive industries supports a majority of government investment in education and health, as well as the pension system. While many resource-rich states can make the same claim, what makes Norway unusual is that it has been able to do so while minimizing corruption, mitigating economic distortions and ensuring efficiency in government spending at the same time.  

How did Norway do it? A look at the Natural Resources Governance Index (NRGI), developed by the Natural Resource Governance Institute, provides a possible explanation: by strengthening governance in the extractive sector. This implies establishing a robust legal and regulatory framework, agile mechanisms to promote transparency and disseminate information, effective safeguards and rigorous controls, and an overall institutional environment that is business-friendly and conducive to greater accountability in the public sector. And this is not a phenomenon unique to Norway, but it is replicated in other countries with large extractive sectors, such as Australia, Botswana and Canada.

Extractive Industries in Latin America and the Caribbean

Latin American and the Caribbean are at a crucial juncture in their effort to strengthen governance in the management of natural resources. On the one hand the above-mentioned NRGI, which measures the quality of extractives governance in 58 resource-rich countries, shows that among the eleven world leaders in quality of extractives governance, more than half are countries from the region (Brazil, Mexico, Chile, Colombia, Trinidad and Tobago and Peru). This is especially good news if one considers that Latin America and the Caribbean is the main source of metals at a global level, and that it holds the second largest oil reserves in the world. Latin America and the Caribbean are also remarkable because many countries have managed to develop large extractive sectors while at the same time avoiding the secessionist conflicts over extractives that plague resource-rich countries in other regions of the world.

On the other hand, Latin America still has to resolve some important issues. Overall, the region still falls short on rule of law and corruption measures in comparison to OECD (Organisation for Economic Co-operation and Development) countries. Social conflicts related to the exploitation of natural resources remain a sensitive issue in the region, especially when extractive industries operate in territories where indigenous communities have a significant interest and presence. Citizen demands regarding the control and mitigation of environmental impacts by governments and corporations are increasing, especially in terms of land use and conservation of water resources and forests. And many Latin Americans are increasingly demanding good governance and transparency in state spending.

Transparency is Key to Improving Governance

The recent IDB book Governance in an Age of Abundance: Experiences from the Extractive Industries in Latin America and the Caribbean (IDB, 2014), edited by Juan Cruz Vieyra and Malaika Masson, analyzes these challenges, particularly in light of recent initiatives to strengthen transparency in the governance of natural resources in the region.

The book focuses on two main themes. The first is on how best to improve governance in the extractives sector, especially in a way that promotes inclusive growth and takes into account the concerns of citizens. The key to this is governance mechanisms that include checks and balances to ensure that the needs of local communities are taken into account. The second theme of the book is a focus on evaluating concrete governance proposals, which include improved legislation, licensing arrangements, contracting procedures, and fiscal regimes. Underlying these two themes is a strong argument in favor of strengthened government capacity to produce, use, and disseminate accurate and timely information about the extractive sector.

The book identifies transparency as a key tool to improve the quality of governance in the extractive sector. This is not an easy task, because effective governance of this sector requires states to manage across a complex set of policy domains. Transparency is part of the solution to this problem by making data available to a wider set of stakeholders. This allows for improved coordination inside of government and helps civil society and the private sector to make informed contributions to public policy and hold governments accountable. For example, Colombia, through its Maparegalías initiative, is putting all the information about how money from extractive industry royalties are being spent, community by community, with everything placed online on an interactive map for easy access. But to make the most out of transparency, states need to address shortfalls in human capacity to use newly available data effectively in the public sector. This is particularly true at the sub-national level in many Latin American and Caribbean countries. Ultimately, as transparency improves and governments use data to operate more effectively and efficiently, citizen trust and confidence in the ability of the public sector to manage the wealth produced by extractive industries will improve. 

The findings of the book point towards two key challenges for governments related to designing and implementing transparency initiatives:

1. Governments need to make data more easily available and more accessible to stakeholders. This includes addressing the quality and timeliness of information. It also means improving the ease of use of data, both in terms of the formatting of data and navigability of the platforms that present it.
2. Governments need to be creative about soliciting feedback from stakeholders in the extractive sector. It is not enough to merely present data to the public. Governments should actively seek out input from citizens. This will ultimately mean investing in public and private capacity to analyze available data so that stakeholders can make informed contributions to governance.

These recommendations present the best way for governments in Latin America and the Caribbean to emerge from the paradoxical Sisyphean trap that resource abundance has all too often posed.

The authors are grateful to Pablo Bachelet, Juan Cruz Vieyra, Francesco De Simone and Martin Walter for their comments. 

Event Information

During the past decade, an abundance of wealth in minerals and hydrocarbons in Latin America and the Caribbean has translated into substantial revenues and macroeconomic growth. However, operations in the extractive sector have also led to significant challenges, such as corruption, negative social outcomes and environmental impacts.

On November 4, the Latin America Initiative and Energy Security Initiative at Brookings, with the Inter-American Development Bank (IDB), hosted a discussion on governance and institutional capacity in the extractive sector in Latin America and the Caribbean, drawing on findings from the publication Transparent Governance in an Age of Abundance: Experiences from the Extractive Industries in Latin America and the Caribbean, published by the IDB. Edited by Malaika Masson and Juan Cruz Vieyra, the book presents transparency as a central element to bolster governance quality and state legitimacy in the context of an increasingly demanding citizenry.

 Join the conversation on Twitter using #LatAmResources

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• Transparent Governance in Latin America’s Extractive Industries

Publicly traded companies in the U.S. provide their shareholders with a voice on who runs the company.  But corporate governance is not like a political democracy where voters usually choose between two candidates.   The company's slate of directors is typically the only one presented to its shareholders who have a limited choice - vote for the company's slate or withhold their votes. 

Recently, however, the director election process has begun to become more democratic. This is happening gradually on an individual company basis under Delaware law, and not by a federal rule applicable to all publicly traded companies. 

In the United States, the traditional rule is that a company's current board nominates its slate of directors for the next annual election.  Then the company foots the bill to prepare and solicit proxies for this slate from all the company's shareholders, typically mailing them ballots.

Although shareholders may nominate their own candidate to be a director, they must bear the entire expense of preparing and distributing proxy materials to all the company's shareholders.  For large publicly traded companies, this expense is so high that it effectively prevents most shareholders from making director nominations (unless someone is waging a proxy fight for control).

In an effort to help even the playing field, the Securities and Exchange Commission (SEC) in 2010 adopted the "proxy access" rule, which would have allowed certain shareholders to nominate less than a majority of a company's directors.  Then these shareholder nominees would have to be included in the company's proxy materials along with its slate of proposed directors.  However, the SEC rule was struck down by the DC Court of Appeals on procedural grounds. 

While the SEC has not proposed a revised proxy access rule, Delaware law now permits companies chartered in that state to adopt a bylaw authorizing shareholder nominations (the charters of most large American companies are registered in Delaware because of its favorable corporate laws).  Thus, Delaware law now provides a mechanism for a large company to allow proxy access under conditions acceptable to that company and its shareholders.

On February 6 of this year, General Electric led the way by adopting a bylaw allowing shareholders to nominate a few directors if these shareholders held at least 3 percent of the company's voting shares for at least three years.  Given the size and prominence of General Electric, it is a signal event – many companies should follow suit.

More broadly, this 3+3 approach of General Electric is being advocated by officials at New York City's

pension plan (NYCers), which holds over $160 billion in assets.   NYCers has submitted "advisory" shareholder resolutions to 75 public companies in which it holds shares.   While these resolutions are not binding on the company, they carry significant weight if approved by a substantial majority of voting shareholders.

In response, Whole Foods has proposed to allow director nominations by shareholders owning at least 9 percent of their shares for at least 5 years.   After a series of complex legal moves, the SEC has declined to permit Whole Foods to exclude the 3+3 proposal because the company is making a different proposal on the same subject.

The SEC's non-decision, together with General Electric's dramatic move, reopens the debate on the pros and cons of proxy access.  Here are some of the key arguments and counterarguments.

• Company officials worry that proxy access will lead to special interest groups hijacking boards for their own purposes.   But shareholder advocates say that the hijacking scenario is unlikely because of the 3 percent ownership threshold and the need to garner over 50 percent of shareholder votes for their nominees.
• Company officials believe that shareholders would be confused if there were more than one set of directors nominated in the same proxy materials. But shareholder advocates can show how proxy materials can be easily understood by clearly separating company and shareholder nominees.
• Shareholder advocates believe that proxy access is likely to increase constructive engagement between company directors and their large institutional shareholders. But company officials are concerned that proxy access will disrupt the election process and lead to dissension among directors.
• Shareholder advocates point out that in countries like Australia and United Kingdom that do have proxy access, it is used sparingly by large shareholders. But company officials emphasize that the U.S. is a much more adversarial society, with more aggressive tactics by activist hedge funds and others.

We cannot resolve these arguments and counterarguments on proxy access in the abstract.

Instead, though actions of companies like General Electric and shareholders like the New York City pension plan, we will be able to examine the actual effects of various methods and conditions for shareholders to nominate directors.  Let’s see what happens on the ground.

The workplace is changing rapidly, and more and more leaders in government and private industry are required to lead those who are geographically separated. Globalization, economic shifts from manufacturing to information, the need to be closer to customers, and improved technological capabilities have increased the geographic dispersion of many organizations. While these organizations offer many exciting opportunities, they also bring new leadership challenges that are amplified because of the separation between leaders and followers. Although much has been researched and written on leadership in general, relatively little has been focused on the unique leadership challenges and opportunities presented in geographically separated environments. Furthermore, most leaders are not given the right tools and training to overcome the challenges or take advantage of the opportunities when leading in these unique settings.

A survey of leaders within a geographically dispersed military organization confirmed there are distinct differences in how remote and local leaders operate, and most leadership tasks related to leading those who are remote are more difficult than with those who are co-located. The tasks most difficult for remote leaders are related to communicating, mentoring and building personal relationships, fostering teamwork and group identity, and measuring performance. To be effective, leaders must be aware of the challenges they face when leading from afar and be deliberate in their engagement.

Although there are unique leadership challenges in geographically dispersed environments, most current leadership literature and training is developed on work in face-to-face settings. Leading geographically dispersed organizations is not a new concept, but technological advances over the last decade have provided leaders with greater ability to be more influential and involved with distant teams than ever before. This advancement has given leaders not only the opportunity to be successful in a moment of time but ensures continued success by enhancing the way they build dispersed organizations and grow future leaders from afar.

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• Proximity to the flagpole: Effective Leadership in geographically dispersed organizations

In a new paper, William Galston and Elaine Kamarck argue that the laws and rules that shape corporate and investor behavior today must be changed. They argue that Wall Street today is trapped in an incentive system that results in delivering quarterly profits and earnings at the expense of long-term investment.

As Galston and Kamarck see it, there’s nothing wrong with paying investors handsome returns, and a vibrant stock market is something to strive for. But when the very few can move stock prices in the short term and simultaneously reap handsome rewards for themselves, not their companies, and when this cycle becomes standard operating procedure, crowding out investments that boost productivity and wage increases that boost consumption, the long-term consequences for the economy are debilitating.

Galston and Kamarck argue that a set of incentives has evolved that favors short-term gains over long-term growth. These damaging incentives include:

• The proliferation of stock buybacks and dividends
• The increase in non-cash compensation
• The fixation on quarterly earnings
• The rise of activist Investors

These micro-incentives are so powerful that once they became pervasive in the private sector, they have broad effects, Galston and Kamarck write. Taken together, they have contributed significantly to economy-wide problems such as: (1) Rising inequality, (2) A shrinking middle class, (3) An increasing wedge between productivity & compensation, (4) Less business investment, and (5) Excessive financialization of the U.S. economy.

So what should be done? Galston and Kamarck propose reining in both share repurchases and the use of stock awards and options to compensate managers as well as refocusing corporate reporting on the long term. To this end, these scholars recommend the following policy steps:

• Repeal SEC Rule 10-B-18 and the 25% exemption
• Improve corporate disclosure practices
• Strengthen sustainability standards in 10-K reporting
• Toughen executive compensation rules
• Reform the taxation of executive compensation

Galston and Kamarck state that the American economy would work better if public corporations behaved more like private and family-held firms—if they made long-term investments, retained and trained their workers, grew organically, and offered reasonable but not excessive compensation to their top managers, based on long-term performance rather than quarterly earnings. To make these significant changes happen, the incentives that shape the decisions of CEOs and board of directors must be restructured. Reining in stock buybacks, reducing short-term equity gains from compensation packages, and shifting managers’ focus toward long-term objectives, Galston and Kamarck argue, will help address the most significant challenges facing America’s workers and corporations.  

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• Download the paper

La fuite des informations du cabinet juridique Mossack Fonseca dans l’affaire des « Panama Papers » a fait et fera la une des journaux pendant des semaines à fur et à mesure de la révélation de nouveaux noms des personnes impliquées. Le scandale a placé le Panama sur le devant de la scène et a donné un aperçu inédit du monde de l’argent caché et de l’évasion fiscale. Afin de mieux saisir le contexte général, il est important de faire la distinction entre la corruption légale, révélée par l’affaire des « Panama Papers » et la corruption illégale, exposée par le scandale Unaoil. Le moment est venu pour les gouvernements de prendre des mesures radicales contre l’une et l’autre.  

Les États-Unis, le Royaume-Uni et plusieurs autres pays annonceront leurs engagements pour lutter contre la corruption lors du sommet anticorruption le 12 mai, dont le Premier ministre David Cameron affirme qu’il changera la donne. La question est de savoir si ces engagements se traduiront par des mesures concrètes à l’égard des types de corruption les plus coûteux qui, aujourd’hui, se prolifèrent à l’échelle mondiale.  

Malheureusement, le monde s’engage souvent dans des  sommets, riches en communiqués, en appels à la coordination et à l’échange d’informations. Parfois, ces sommets mettent en place une initiative inefficace supplémentaire : donnant l’opportunité de créer et promouvoir des articles et photos qui servent les objectifs politiques précis de certains leaders politiques. Voyons si ce sommet sera diffèrent.

Au-delà du Panama

Le cabinet juridique Mossack Fonseca et son pays respectif, le Panama, ne sont que deux éléments dans le vaste et complexe ensemble de « facilitateurs » de la corruption et de l’évasion fiscale à l’échelle mondiale.     

Pour ceux qui sont à la recherche de refuges discrets et de sociétés-écrans, la puissante nation des États-Unis (qui sans surprise n’apparaît pas beaucoup dans les Panama Papers) est une des destinations les plus attrayantes du monde : par example, dans l’état du Delaware la loi requiert  moins de documents pour établir une société-écran que pour obtenir un permis de conduire. Comme on le voit dans l’illustration ci-dessous, c’est cette opacité, conjuguée à la taille du refuge qu’offrent les États-Unis, qui met le pays à la troisième place des juridictions les plus secrètes parmi une centaine évaluée par l’indice d’opacité financière (FSI). Le Panama est à la treizième place.

Illustration 1 : Indice d’opacité financière 2015 (Juridictions sélectionnées, d’après le réseau pour la justice fiscale)

Source : Indice d’opacité financière du Réseau pour la justice fiscalehttp://www.financialsecrecyindex.com/introduction/fsi-2015-results

Ce graphique présente les 40 juridictions les moins performantes ainsi que quatre juridictions choisies pour leurs meilleurs résultats (à droite des pointillés). L’indice présente un score de secret qualitatif basé sur une quinzaine d’indicateurs et une mesure quantitative de l’importance d’une juridiction dans les exportations de services financiers à l’échelle mondiale. 

Le Royaume-Uni est un important facilitateur de corruption : il n’a engagé aucune action contre ses juridictions et protectorats d’outre-mer qui servent de refuge aux richesses illicites, comme le démontrent clairement les  « Panama Papers ». Les Iles Vierges britanniques, par exemple, est le lieu préféré  de milliers de sociétés-écrans établies par Mossack Fonseca.  

Au-delà des refuges fiscaux 

L’affaire des « Panama Papers » ne concerne qu’indirectement les aspects essentiels de la question de la corruption mondiale, qui ne sont liés ni au Panama ni à la fiscalité. Nous devons envisager les scandales suscités sous un angle plus large et reconnaître les immenses et complexes réseaux de la corruption, qui lient de plus en plus les élites économiques et politiques mondiales.

La grande corruption

Les puissants individus qui s’engage dans la corruption à haut niveau, c’est-à-dire la corruption à large échelle ne sont pas inquiétés par l’affaire des « Panama Papers ». On trouve parmi ces individus des dirigeants kleptocrates ainsi que des oligarques qui exercent une influence majeure sur les affaires gouvernementales. Souvent, ces acteurs interagissent et s’associent, en formant des réseaux public-privé très puissants qui font passer pour un jeu d’enfant la définition traditionnelle de la corruption comme étant une transaction illégale entre deux parties.

Dans ces réseaux élitistes, la corruption excède largement le comportement immoral du fraudeur type, puisqu’elle utilise l’abus de pouvoir pour accumuler biens et pouvoir, souvent par le pillage direct des ressources publiques, la confiscation d’actifs ou la corruption à grande échelle. Le scandale à plusieurs milliards de dollars qui touche le géant pétrolier Petrobas au Brésil illustre la complexité de ces réseaux d’entente, et les moyens avec lesquels, la corruption à large échelle  peut provoquer des dégâts politiques et économiques d’ampleur historique dans un pays. 

Le secteur pétrolier offre de nombreux example de corruption à large échelle. Les dirigeants de la société Unaoil, dont un scandale similaire a récemment fait surface,  ont sans doute été soulagés par l’affaire des « Panama Papers » Unaoil est une société monégasque  « facilitatrice » de droit qui a versé des pots-de-vin et influencé des responsables gouvernementaux dans différents pays pour le compte de compagnies multinationales se disputant de juteux contrats d’approvisionnement. Bien qu’éclipsé par l’affaire du Panama, le cas d’Unaoil est aussi emblématique les enjeux inhérents à la lutte contre la corruption mondiale. Il illustre par exemple la pratique fortement enracinée des responsables gouvernementaux irakiens qui demandent des dessous de table en échange de l’attribution de contrats, ainsi que l’empressement des entreprises à verser ces pot-de-vin.

Les élites corrompues, notamment celles qui sont impliquées dans le scandale Unaoil, utilisent souvent des structures telles que les sociétés-écrans et les paradis fiscaux (et les investissements immobiliers ou autres) pour dissimuler leur biens mal-acquis. Toutefois, si l’affaire des Panama Papers incite à plus de vigilance sur les flux financiers illicites et engendre la réforme de ces structures financières opaques, la corruption à large échelle se poursuivra dans nombreux endroits.  Il est à noter que les retombées politiques se sont concentrées dans des pays relativement bien gouvernés, qui ont instauré des systèmes anticorruptions et de responsabilisation, comme en témoignent les démissions du Premier ministre islandais, du ministre de l’industrie espagnol et du dirigeant de la section chilienne de Transparency International. 

En revanche, le président Vladimir Poutine a balayé d’un revers de la main les fuites d’information sur la Russie, les considérant comme une conspiration occidentale contre sa personne. En Chine, le débat et la diffusion de ces informations ont été étouffés par la censure des médias ; en Azerbaïdjan, la révélation des détails concernant les intérêts miniers de la famille du président Aliyev ne menace guère sa mainmise sur le pouvoir. Il est à espérer que les réformes découlant de l’affaire du Panama dissuaderont les fraudeurs ainsi que les entreprises et les particuliers aux pratiques immorales de dissimuler leur argent bien mal acquis. Toutefois, les dirigeants corrompus continueront à bénéficier de l’impunité.

Corruption légale et captation de l’État   

Les Panama Papers ont mis en lumière le type de corruption qui est sans doute le plus dévastateur et le plus dure à contrecarrer : la corruption légale et la captation de l’État.  Partout dans le monde, de puissantes élites économiques et commerciales influencent indûment les lois et les politiques, en redessinant les règles du jeu pour leur propre bénéfice, un phénomène aussi connu sous le nom de « privatisation de la politique publique et des lois ». Une pratique qui génère des revenus exorbitants pour les élites, renforce leur pouvoir et exacerbe les disparités politiques et économiques d’un pays.

Les pays riches en ressources naturelles fournissent de nombreux exemples. En Angola, en République démocratique du Congo, au Nigéria et au Venezuela, par exemple, les élites politiques ont utilisé des sociétés publiques exploitant les ressources naturelles pour servir leur népotisme, souvent - mais pas uniquement - par des moyens légaux.

Dans beaucoup de pays industrialisés, le système fiscal est en lui-même un exemple de captation de l’État. Il est dans l’intérêt des élites de conserver un réseau mondial de sociétés offshore et de paradis fiscaux secrets pour pouvoir dissimuler leur patrimoine - qu’il ait été acquis légitimement ou non. Les preuves d’évasion fiscale aux États-Unis sont révélatrices : selon Zucman, depuis les années 1950, le taux réel de l’impôt sur les sociétés a été réduit de 45 à 15 pour cent, alors que le taux nominal est seulement passé de 50 à 35 pour cent. Et les sociétés américaines font un usage optimal des paradis fiscaux à l’étranger : d’après un nouveau rapport d’Oxfam, les 50 plus grandes multinationales américaines ont rapporté en 2008 que 43 pour cent de leurs revenus réalisés à l’étranger provenaient de cinq paradis fiscaux, représentant seulement 4 pour cent des effectifs étrangers de ces sociétés. En outre, Bourguignon rappelle que les taux d’imposition fédéraux des Américains les plus riches ont diminué de 15 pour cent entre 1970 et 2004.

Le risque de corruption légale aux États-Unis est important, l’argent privé pouvant très facilement influencer les affaires publiques. Suite à l’arrêt Citizen United rendu par la Cour suprême en 2010 [qui permet la participation financière des entreprises aux campagnes politiques], les fonds privés issus de poches bien garnies dirigent de plus en plus les campagnes électorales. Les moyens par lesquels l’argent privé influence les représentants publics pourraient encore se multiplier, si les formes de corruption traditionnellement considérées comme illégales devenaient légales. Selon une décision en instance de la Cour Suprême, il pourrait désormais être légal pour les responsables publics d’accepter les dons en nature des particuliers (ce qui pourrait annuler la condamnation d’un ancien gouverneur de l’État de Virginie accusé précisément de ce délit).  

Quelles mesures prendre ?     

En Bref, Il n’y a pas de solutions simple  et directe, d’autant plus que les décideurs tirent profit de ce statu quo.  Mais l’opportunité de réforme et la pression publique sont actuellement présentes. Comme nous l’avons évoqué, la question de la lutte contre la corruption entraîne souvent des mesures symboliques et l’annonce par David Cameron d’une nouvelle agence mondiale anticorruption pourrait très bien tomber dans cette catégorie. Les pays comme les États-Unis et le Royaume-Uni devraient plutôt prendre des mesures concrètes pour réformer leurs propres pratiques et pousser leurs partenaires à faire de même, qu’il s’agisse des dépendances de la Couronne et des territoires britanniques d’outre-mer, de l’Union européenne et des membres du G20 ou des bénéficiaires d’une aide internationale.

Premièrement, il faudrait prendre la corruption légale et la captation de l’État au sérieux 

La transparence peut changer les règles du jeu, particulièrement si elle s’attaque aux réseaux d’influence par lesquels la politique se « privatise ». La divulgation des contributions financières aux campagnes électorales, des conflits d’intérêts, des avoirs détenus par les hommes politiques et les responsables publics (et de leurs avis d’impôts), des délibérations et votes parlementaires sont autant de moyens d’éviter les abus et de révéler les réseaux cachés qui sont à l’œuvre. La publication récente de la première salve de l’Organisation de Coopération et de Développement Economiques (OCDE) est encourageante : son rapport « Le financement de la démocratie », s’attache à quelques études de cas. La suite logique serait d’habiliter l’organisation à développer des normes et mener des évaluations sur le financement politique de tous les pays de l’OCDE.

La transparence ne sera utile que si les citoyens peuvent mener un examen attentif de leurs gouvernements et dialoguer avec eux.  L’espace civique est en danger dans de nombreuses juridictions où les activistes et les journalistes sont la cible d’intimidations, de poursuites, voire pire. Garantir la liberté d’expression et de réunion devrait être l’affaire de tout acteur international concerné par la lutte contre la corruption ou la gouvernance économique. Par exemple, lors de l’examen des demandes de financement de gouvernements ayant un piètre bilan en matière de protection de la société civile - comme c’est le cas de l’Angola et de l’Azerbaïdjan - la Banque Mondiale et le Fonds Monétaire International, ainsi que les donateurs comme les États-Unis, devraient privilégier la responsabilisation citoyenne et des réformes de transparence plus ambitieuses.

En outre, la corruption à large échelle ne s’évincera pas en l’absence de poursuites ou d’autres sanctions efficaces contre ceux qui se laissent corrompre ou contre les facilitateurs et les intermédiaires de la corruption qu’ils soient avocats, comptables ou entremetteurs comme Unaoil. Bien sûr, les autorités chargées d’appliquer la loi doivent aussi rester vigilantes vis-à-vis des sociétés qui versent les pots-de-vin et à cet égard, les gouvernements - notamment les membres de l’OCDE instaurant, à des degrés divers, la Convention de l’OCDE sur la lutte contre la corruption - feraient bien d’imiter la mise en œuvre effective de la loi américaine sur la corruption dans les transactions à l’étranger (FCPA). Mais les individus corrompus et les facilitateurs n’ont pas été suffisamment surveillés et sanctionnés.

Deuxièmement, il faudrait se débarrasser des zones d’ombre.

Les leçons tirées des événements récents, de la crise financière de 2008 à l’affaire des Panama Papers, indiquent que les principaux acteurs internationaux ne devraient pas permettre que de vastes fractions de l’économie mondiale échappent à un examen attentif. Les États-Unis et le Royaume-Uni (et ses territoires d’outre-mer) devraient répondre aux appels à mettre fin à l’opacité et aux paradis fiscaux.  Quelques premières tentatives  émergent, telle que la décision du gouvernement américain demandant aux banques de révéler l’identité des individus se cachant derrière les sociétés-écrans. Des mesures plus ambitieuses seront toutefois nécessaires, ceci comprend des dispositions législatives.  

La transparence sur la propriété réelle doit devenir une procédure opérationnelle standard, avec des États qui suivent l’exemple du Royaume-Uni, des Pays-Bas et d’autres pays qui ont établi des registres publics et soutiennent le projet d’un registre mondial. Quant aux pays riches en ressources naturelles, un bon point de départ serait d’établir des registres spécifiques au secteur. Cette pratique est maintenant imposée par l’Initiative pour la Transparence dans les Industries Extractives.

Au sein du secteur extractif, les gouvernements des pays d’accueil devraient soumettre les négociants de matières premières à des exigences de divulgation des paiements lorsqu’ils font affaire avec les gouvernements et les entreprises publiques. Les gouvernements de pays comme la Suisse, le Royaume-Uni et Singapour, qui abritent des acteurs du monde de l’entreprise, ont une lourde responsabilité, particulièrement dans le contexte actuel de faible prix des matières premières, où les négociants concluent de nouveaux contrats profitables avec des pays producteurs de ressources à court d’argent. Eclaircir telles zones d’ombre les rendra moins vulnérables aux abus.

Troisièmement, il faudrait donner la priorité à la transparence et au contrôle lors de l’allocation de ressources publiques.

Lorsqu’un gouvernement attribue des ressources pour l’exploitation, il doit le faire de façon tout à fait transparente. L’initiative Open Contracting Partnership a fait de grandes avancées dans la définition d’une norme de référence pour de telles informations, notamment en matière d’orientation sur les questions de l’ouverture des données, des identificateurs des sociétés et de la propriété réelle.

Les recherches sur la corruption dans les secteurs pétrolier et minier menées par le Natural Resource Governance Institute montrent que de multiples allocations à forte valeur nécessitent un examen attentif et une divulgation du contrat. Elles comprennent l’attribution des permis d’exploration et de production, mais aussi des droits d’exportation, d’importation ou de transport, qui ont été associés à la corruption dans des pays comme l’Indonésie, la République du Congo et l’Ukraine. La plupart des affaires liées au secteur pétrolier et portées devant les tribunaux dans le cadre de la FPCA aux États-Unis ont surgi à l’occasion de l’attribution de marchés de service, un segment de l’industrie pétrolière qui concernait également les scandales Unaoil et Petrobras. La transparence devrait être le « paramètre par défaut » de toute transaction allouant des ressources publiques. Il est nécessaire d’exercer un contrôle supplémentaire des régimes de taux de change mis en œuvre et abusifs, qui génèrent des revenus pour quelques-uns et engendrent des disparités économiques majeures, comme c’est le cas actuellement au Nigeria, au Venezuela et en Égypte.

Pour espérer un impact réel, il faudra aussi s’attaquer frontalement au principe d’impunité, puisque la transparence et la liberté d’expression sont certes nécessaires, mais insuffisantes.  Et les Etats, y compris les États-Unis et le Royaume-Uni, devront adopter des réformes pour lutter contre la corruption légale et l’opacité sous toutes ses formes, que ce soit en s’attaquant à la mainmise de l’argent en politique ou aux « zones d’ombre » entourant les négociants pétroliers installés à Genève et Londres. 

Un engagement ambitieux à lutter contre la corruption et l’impunité n’est pas seulement une nécessité actuelle, mais aussi une revendication de nos sociétés, comme l’ont montré les événements au Brésil et ailleurs. Ce pourrait être le moment décisif de faire de réelles avancées à l’échelle mondiale.  

This piece is also available in English and Spanish. 

The Syrian uprising has changed significantly since the first signs of localized armed resistance began emerging in late April 2011. Western states and regional countries opposed to President Assad’s rule failed to manage the formation of an organized and representative political and military opposition body over the past three years. Instead, fragmentation of first the opposition, and then the conflict as a whole, has come to pose numerous serious threats to regional and international security and stability.

In a new Policy Briefing by the Brookings Doha Center, Charles Lister analyzes the Western-backed opposition, the spreading influence of jihadi militants, and the evolving capabilities of pro-government forces. With a definitive military victory seemingly out of reach for all sides of the conflict, Lister argues these parties will remain at a standoff until a political solution is reached. However, as armed groups multiply on either side, even an agreement between government and opposition will be unlikely to end the violence.

Lister concludes that Western and regional countries should focus on two core policy objectives. First: the international community should bolster a cohesive opposition that can challenge the Assad regime in battle as well as in negotiations. Second: the international community should aid Syria’s neighbors in managing the violent spillover of the conflict, particularly curtailing the potential for Syria-based jihadi groups to expand their operations beyond the country.

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Brookings Doha Center Analysis Paper, December 1, 2014

Intense turmoil in Syria and Iraq has created socio-political vacuums in which jihadi groups have been able to thrive. The Islamic State in Iraq and al-Sham (ISIS) had proven to be the strongest and most dynamic of these groups, seizing large swathes of territory in Syria and Iraq. Shortly after routing Iraqi forces and conquering Mosul in June 2014, ISIS boldly announced the establishment of a caliphate and renamed itself the Islamic State (IS). How did IS become such a powerful force? What are its goals and characteristics? What are the best options for containing and defeating the group?

In a new Brookings Doha Center Analysis Paper, Charles Lister traces IS’s roots from Jordan to Afghanistan, and finally to Iraq and Syria. He describes its evolution from a small terrorist group into a bureaucratic organization that currently controls thousands of square miles and is attempting to govern millions of people. Lister assesses the group’s capabilities, explains its various tactics, and identifies its likely trajectory.

According to Lister, the key to undermining IS’s long-term sustainability is to address the socio-political failures of Syria and Iraq. Accordingly, he warns that effectively countering IS will be a long process that must be led by local actors. Specifically, Lister argues that local actors, regional states, and the international community should work to counter IS’s financial strength, neutralize its military mobility, target its leadership, and restrict its use of social media for recruitment and information operations.

The need to confront and drive back the forces of the Islamic State (IS) has pushed long-term reform efforts in Iraq far down the list of priorities. Yet pressing economic reforms – such as restructuring and rebuilding the country’s energy sector – increasingly seem a strategic necessity, as oil prices have fallen far below government projections. How can politicians be persuaded to invest in Iraq’s long-term future at a time of imminent security threats? How can the efforts to reform the Iraqi electricity network be harnessed to reestablish government authority in newly retaken areas?

Luay Al-Khatteeb and Harry Istepanian address these questions through analysis of past attempts at electricity sector reform. They argue that even before IS advances plunged Iraq into a deep political and security crisis, divisions within the Iraqi parliament and various government agencies had stymied efforts at reform. Still, they note that improving the provision of electricity is a clear opportunity to improve basic services to its citizens, boosting government legitimacy and acceptance in areas under its control, especially as it seeks to retake territory from IS.

Khatteeb and Istepanian hold that a comprehensive strategy is needed, one that incorporates an expanded role for the private sector, rationalized electricity tariffs, and a host of technical fixes to improve efficiency. Ultimately, they contend, much will depend on whether the government of Prime Minister Haidar al-Abadi views the IS threat as an excuse for inaction or an impetus for change.

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The recent fall in world oil prices undoubtedly has an impact on the politics of the Middle East, where many states rely heavily on oil to fund their governments and to float their economies more generally. One can cite serious domestic and regional disruptions that have followed severe oil price declines in the recent past. Will the current period of dropping prices result in domestic upheaval and regional war? Is the price drop part of a Saudi power play against its regional rivals?

Read Sultans of Swing? The Geopolitics of Falling Oil Prices

In this Policy Briefing, F. Gregory Gause, III answers the above questions by analyzing the regional impact of previous declines in the price of oil. He argues that Saudi Arabia is merely continuing its policy of only considering production cuts to arrest falling prices if other producers join them. Gause also finds that, despite memorable exceptions, oil-dependent regimes are actually more stable than their non-oil counterparts, including during periods of lower prices.

In considering the Middle East, Gause identifies a pattern of the region’s oil producers negotiating agreements on production cuts, rather than coming to blows, when faced with low prices. He stresses that if Iran, and perhaps Russia, approach Saudi Arabia about negotiating an oil deal, the United States should encourage such talks, and be ready to expand them to include the largest strategic picture of the Middle East.

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In 2013, China surpassed the European Union to become the Middle East and North Africa (MENA) region’s largest trading partner, and Chinese oil imports from the region rival those of the United States. Do China’s growing interests in the Middle East imply a greater commitment to the region’s security? How can China and regional governments reinforce these ties through greater diplomatic engagement?

In a new Policy Briefing, Chaoling Feng addresses the key choices facing Chinese and Middle East policymakers. She finds that China’s continued reliance on a framework of “non-intervention” is being challenged by the region’s divisive conflicts. Indeed, China’s economic interests face mounting risks when even maintaining “neutrality” can be perceived as taking a side. Furthermore, China’s case-by-case, bilateral engagement with MENA countries has hindered efforts to develop a broader diplomatic approach to the region.

Read "Embracing Interdependence: The Dynamics of China and the Middle East"

Feng argues that China and particularly the GCC states must work to further institutionalize their growing economic interdependence. China, drawing on its experiences in Africa and Latin America, should take a more holistic approach to engagement with the MENA region, while enhancing Chinese institutions for energy trading. GCC countries, for their part, should aim to facilitate bilateral investments in energy production and support China’s plans for Central and West Asian infrastructure development projects.

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Indian Prime Minister Narendra Modi’s recent visit to the United Arab Emirates revealed New Delhi’s intention to bolster bilateral relations with the Gulf states. It was the first visit by an Indian prime minister in over 30 years, demonstrating the country’s renewed focus on expanding ties with the region it has always called “West Asia.” Although India and the Middle East share a long history of trade, immigration and cultural exchange, relations have yet to reach their full potential.

Read "Dealing with Delhi: How culture shapes India’s Middle East policy"

In this policy briefing, Kadira Pethiyagoda highlights the importance of an under-reported aspect of the relationship – culture. The author explains the role it plays in India’s policies toward the region, particularly under the current government, and argues that Gulf states need to understand the impact of Indian values and identity. Pethiyagoda provides recommendations on how the Gulf states can, through better understanding the cultural drivers of Indian foreign policy, build stronger ties with India, thereby advancing both economic and strategic interests.

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International jihad has undergone a wholesale internal revolution in recent years. The dramatic emergence of the Islamic State (IS) and its proclamation of a Caliphate means that the world no longer faces one Sunni jihadi threat, but two, as IS and al-Qaida compete on the global stage. What is the relationship between the groups and how do their models differ? Is IS’s rapid organizational expansion sustainable? Can al-Qaida adapt and respond?

Read "Jihadi Rivalry: The Islamic State Challenges al-Qaida"

In a new Brookings Doha Center Analysis Paper, Charles Lister explores al-Qaida and IS’s respective evolutions and strategies. He argues that al-Qaida and its affiliates are now playing a long game by seeking to build alliances and develop deep roots within unstable and repressed societies. IS, on the other hand, looks to destabilize local dynamics so it can quickly seize control over territory.

Lister finds that the competition between IS and al-Qaida for jihadi supremacy will continue, and will likely include more terrorist attacks on the West. Accordingly, he calls for the continued targeting of al-Qaida leaders, the disruption of jihadi financial activities, and greater domestic intelligence and counter-radicalization efforts. Lister concludes, however, that state instability across the Muslim world must be addressed or jihadis will continue to thrive.

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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.

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.

I appreciate this opportunity to share my thoughts about ways that retirement plans can provide clear, concise and objective information to participants that enables them to make appropriate decisions.  However, I would go beyond that to provide information that also motivates employees towards actions that will prove to be in their long-term best interest.

The shift from traditional pensions to the current defined contribution system places most of the responsibility for making decisions on the participant.  Automatic enrollment and similar features assist them by combining several formerly potentially complex decisions about whether to participate, how much to save and what investment vehicle to use into one question that the employee can effectively answer by doing nothing.  While the result may not be optimal in all situations, it is certainly better for the saver than not saving at all or waiting until he or she has all of the answers – a day that for many may never come.  For these reasons, automatic enrollment and escalation are extremely popular with both those who accept the automatic choices and those who opt out.

Unfortunately, at this time, automatic mechanisms are not available for every decision that an employee might need to make between starting to save and retirement.  Over time, additional mechanisms that are in development will further simplify these plans, but they are not available yet.  Today’s automatic mechanisms also do not necessarily affect the attitudes that participants may have about their saving balances and how they might be used.  To assist in these areas, effective participant communication is needed.

In order to be effective, communications and notices to employees must have a consistent message that regularly appears throughout an employee’s career.  No single notice, no matter how effectively worded or how timely it is provided, will be as effective as a regular series of messages.  And in order to be effective, notices and statements need to be geared to the needs of the participant rather than to provide legal cover to the plan sponsor for any unanticipated situation.  This requires that they be short, clear, simple and to the point. 

This need for regular communication as opposed to a single notice or series of notices is especially true for withdrawal options.  Whether the participant is leaving the employer or retiring, they need to have key information well in advance of when it is needed.  Otherwise, the saver may be influenced by others who are not acting in their best interests or make a decision based on advice from well-meaning, but poorly informed family friends.

An effective participant education plan for lifetime plan participation and effective withdrawal options should have at least three separate parts, which are detailed below.  These include effective information contained in the quarterly statement; notices at the time an employee leaves the plan due to a job change, and a pre-retirement education campaign. 

While all three must have consistent messages, they should also be tailored for specific circumstances.  What follows is a general discussion, as effective model forms require field-testing in focus groups and similar settings.  Unfortunately, forms developed by financial professionals with a deep understanding of key issues often gloss over important background information or have technical wording that confuses non-professionals. 

Another problem with many individual statements and notices is that they contain too much information.  The professionals who developed them recognize the limitations of projection models and seek to compensate by providing a range of results using differing assumptions.  Unfortunately, this either further confuses the reader or appears as a dense block of type that is usually completely skipped.  It is far better to provide a simple illustration with clear warnings of its limitations than to flood the employee with complex information that will be ignored.

The most important participant education tool is the quarterly statement they receive.  Properly structured, these statements can set the stage for more specific notices before an employee leaves the employer due to either a new job or retirement.  Today’s statements are often too long and inadvertently cause the employee to focus on account balances rather than seeing the retirement plan as a source of future income.  In many cases, they also fail to note that income from the plan should be added to Social Security for a better estimate of total retirement income.  Two major innovations would be to add both income illustrations and to combine 401k statements with the existing Social Security statement.

Income illustrations: Most of today’s quarterly statements focus almost exclusively on the amount that an individual has saved and how much he or she has gained or lost in the previous quarter.  This focus damages the ability of a participant to see the plan as anything other than a savings account.  Faced with a lump sum of retirement savings that may be a much higher amount than an individual has ever had and little or no practical experience about how to translate that amount into an income stream, it would be very easy for a worker to assume that he or she is much better prepared for retirement than is actually the case.  An income illustration would help savers to make earlier and better decisions about how much they may need to save and how best to manage their retirement assets.

The illustrations should also encourage participation both by including both current and projected balances and by showing the additional income that could be expected if the saver slightly increased his or her contributions. 

Including income illustrations for both current and projected retirement savings balances would have a greater incentive effect than just including current balances.  For younger employees, the very small amount of income that would be produced from their current retirement savings balances may discourage them from further savings and thus have the opposite effect of what is in their long-term best interest and the objective of this disclosure.  Including an income illustration for projected balances that assumes continued participation provides a clearer picture of the extent to which the amount that the individual is saving will meet his or her retirement income needs.

Studies show that an illustration of the additional income that can be derived from a higher level of saving is likely to stimulate the participant to increase his or her savings rate.  Plan sponsors should be encouraged to also include balance projections and income illustrations that show how much retirement income an individual would have if they modestly increased the proportion of their income that they contributed to their retirement savings plan.  For instance, in addition to the income illustrations based on their current balances and projected balances assuming their current savings rate, there might be an illustration based on saving an additional one percent of income and another three percent of income. 

Combining Social Security Statements with Quarterly Statements: As a further way of moving the focus of quarterly statements away from lump sums and investment returns and towards retirement income, an accurate estimate of projected Social Security benefits could be added to at least one annual quarterly statement containing an income illustration.  Some 401(k) providers already simulate Social Security benefits and provide this information to account owners, but these providers lack the income and work history data to make a truly accurate projection.  Collaboration between SSA and 401(k) plan administrators could result in adding information from the once annual Social Security statement to at least one 401(k) quarterly report each year.

Two sets of concerns about using Social Security information would need to be addressed: concerns about privacy and concerns about accuracy. Previous discussions of similar proposals failed because of privacy concerns, as many individuals do not want employers to have access to their Social Security information. Account holders’ privacy is a concern for 401(k) providers too, and providers go to great lengths to protect the confidential data in the quarterly statements. To assuage concerns about the data from SSA, Social Security data could be provided directly to 401(k) administrators rather than employers and included on an annual 401(k) statement only if the administrators meet certain SSA-developed privacy standards. Individuals could have control over this decision through the ability to opt in to the service or to opt out, if the service were automatic. This should preserve individual choice and satisfy persons especially concerned about privacy.

To ensure accuracy and consistency, income illustrations of balances in the 401(k) and SSA projections would need to be produced using compatible methodologies that allow the projected monthly income estimates to be combined for a complete picture of estimated retirement income. This is not a terribly difficult problem.  This reform will give people important information about how to plan their futures. They desperately need this information, and providing it should be fairly simple and cost-effective.

Using an Enhanced Statement as a Base for Additional Guidance and Education

An enhanced quarterly statement with a consistent message that retirement plan participation is intended as retirement income will set the stage for more effective education when the participant leaves the employer.  The current statement format that focuses on aggregate savings amount and the performance of investments sends the message that the balances could be used for other purposes.  This encourage leakage when employees change jobs and may leave the impression that the savers has sufficient resources to use part or all of that money for other purposes.

While the information on investment returns is important and should remain on the statement, it should be de-emphasized, with the focus moving to retirement income that it can provide.  As an aside, let me be clear that I do not favor eliminating the ability to withdraw savings before retirement in the event of an emergency.  For one thing, doing so would reduce participation, and could hurt vulnerable populations that have no other major source of savings.  However, the purpose of the quarterly statement should be to inform savers of their future retirement income, and its orientation should be towards that goal.

Several studies show that the biggest source of leakage occurs when employees change jobs.  Part of the reason for this loss of savings may be the way that employers handle the discussion about retirement assets upon separation.  A discussion that is centered on the open question of what should we do with your money may encourage savers to simply ask for their money as a lump sum.  This is especially true if the participant is not informed of the tax consequences of an early withdrawal and the potential effect on future retirement income.

On the other hand, if the participant has received a consistent message that the account is for retirement income, and is informed of the potential consequences of withdrawing the money, they would be less likely to take the funds and more likely to leave the money in the current employer’s plan or to roll it into a plan offered by the new employer or an IRA.  Of course, part of this decision would be determined by whether the current employer is willing to allow the money to remain in their plan or if they would prefer it to be moved to another location.

As a side note, the process of combining retirement savings from one employer to another would be much easier if there is a simple mechanism that can be used to make such transfers.  As I can testify from personal experience, it can be extremely complex to roll retirement money from one employers’ plan to another’s even for those of us who work in this field.  Plan administrators from both the sending and receiving plans make this process overly difficult in part because one party needs to know if it is a legitimate transfer as opposed to a withdrawal, and the other needs to know that the money it is receiving has the proper tax status.  While it is beyond the scope of today’s hearing, it is definitely worth the effort for regulators and if necessary legislators to simplify the process and encourage automatic rollovers between employers.

Contents of Model Notices for Participants Changing Employers:

Given this background, a disclosure notice provided to employees who are moving to another employer should include specific information about several topics.  However, a one-shot notice will be far less effective than an educational campaign that includes information about how poor decisions when changing jobs can adversely affect retirement security.  This information should not be limited to when an employee departs; it should also be included in regular communications.

When an employee moves to another employer, he or she needs to know:

• Ability to retain fund in the account or roll them into another account: The employee should be informed that moving the money to another retirement account, ideally that of the new employer, is the best option.  He or she should also be informed if the current plan is willing to continue to hold the money.  Information about how to effect the rollover and/or a third party willing to assist with the transaction can be provided on a separate sheet.
• Tax consequences of withdrawing the money: An early withdrawal from a traditional account is usually subject to both income taxes and a penalty.  The employer should be informed of both the combined marginal rate and the total amount of retirement money that will be lost by taking the money out of the system.
• Effect on retirement security of withdrawing the money: Using an income projection, the participant should be shown that a withdrawal will potentially reduce their income at retirement by a certain dollar amount.  They should also be shown how long it will take to replace that amount of saving.
• Potential costs of moving to the wrong IRA provider: Moving from a relatively low administrative cost employer plan into an IRA with higher fees could have a major effect on the eventual retirement income.  Participants should be informed of this and offered a separate sheet discussing how to tell if an IRA provider has appropriate fee levels.  This can ge general information rather than tailored to the specific employee.
• Continuing to save at the same rate in the new employer’s plan: Finally, the employee should be encourage to start saving in the new employer’s plan at least at the same level that they have been contributing to the plan of the current employer.

These disclosures do not need to be extremely detailed or presented in legal terms.  If the participant cannot immediately understand what is being said, the information is essentially useless.  To relieve employers’ worry about legal liability, a model form that protects them from liability would be worth creating.  However, this information is important, and could have a major effect on whether the money leaks out of the retirement system or remains in it.

Finally, the term “model form” does not need to mean a single form.  In cases where a great deal of information needs to be available, one form could summarize the situation, while others provide more detailed information about certain subjects.  However, this does not mean that these other forms should be written in long, legalistic language.  Both the summary form and others should be in clear, concise language with appropriate graphics.

Decisions about how to translate retirement savings into an appropriate income strategy can be among the most complex that an individual faces.  Even those of us who work in the field can find the decision about whether to use an annuity or longevity insurance to supplement other strategies daunting.  This confusion is only made worse by the focus of today’s quarterly statements on lump sums and investment performance.

Ideally, retirement income disclosures would be combined with an automatic enrollment-like withdrawal strategy that the employee could adopt simply by not opting out.  Unfortunately, while this is the subject of much research by both many groups and companies, it is not currently available.

To be most effective, education on retirement income strategies should not be delayed until the participant reaches a specific age.  Rather, it should begin with the design of the quarterly statement and continue with regular discussions of how to create a retirement strategy throughout an employee’s career.  Even if the participant does not pay much attention for many years, the information will form a backdrop that will be recalled when he or she starts to think about retirement.

Because retirement income strategies are complex, the notices should include both a short summary sheet and individual longer notices on specific topics.  Covered information should include:

• An overview sheet with general information: A general discussion of how to think of retirement income as well as the general elements that can be combined to provide an appropriate amount of secure income.
• The role of Social Security: Social Security pays an inflation-indexed annuity that serves as the basis for retirement income strategies.  Employees should be given information about how much they can expect, how to apply for benefits, and the value of delaying their benefits. 
• What income options are in the employer plan: If the employer plan offers any income options, they should be disclosed and explained.  If not, the employee should be informed that they would need to go outside the plan and given advice on how to select a provider (see below).  This would include the potential problems of turning the money over to a broker to manage.
• How long an individual is likely to live: Most people have no idea how long they could live in retirement.  A brief discussion of the average longevity for their specific gender and birth cohort along with a notation that average longevity means that half of them will live longer would be helpful.
• Longevity insurance and how to use it:  Longevity insurance can be a valuable part of a retirement income plan.  How to think about it and choose a policy would be valuable.
• Using immediate annuities and how to buy one: This is a separate discussion from longevity insurance.  While few of today’s retirees may be interested in immediate annuities, information on how to select one should be included.
• Positives and negatives of a phased-withdrawal system: Most retirees will use a phased-withdrawal system for at least some of their retirement income.  This would briefly explain the value of one, the drawbacks of withdrawing a set percentage of savings each year, and how to choose a plan.
• How to choose a financial advisor: Hopefully, may employees will seek the advice of a professional.  If the employer does not provide access to an adviser, tips on how to select one and what questions to ask would be useful.

Again, this is complex information, and employers should also be encouraged to sponsor seminars and counseling sessions for retiring employees.  As mentioned repeatedly, the value of this information and the employee’s receptivity to it would be much greater if it has been part of a regular communications strategy that is simple and accessible.

The contents of individual notices are important, but they will be much more effective if they are placed in the context of a communications strategy with a consistent message.  Making the focus of participant education the fact that the purpose of saving in the plan is to produce retirement income rather than lump sums will help participants understand the importance of rolling over their money when changing employers and of developing a sound income strategy when they retire.

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.

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In many policy-related situations, the states can be useful laboratories to determine the most appropriate federal actions. Variations across states in health care programs, earned income credit rules, minimum wages, and other policies have helped inform debates about federal interventions.

In this paper, we reverse that approach. Many state and local governments currently face difficulties financing future pension obligations for their workers. The federal government, however, faced similar circumstances in the 1980s and successfully implemented a substantial reform. We examine the situation the federal government faced and how it responded to the funding challenge. We present key aspects of the situation facing state governments currently and draw comparisons between them and the federal situation in the 1980s. Our overarching conclusion is that states experiencing distress today about the cost and funding of its pension plans could benefit from following an approach similar to the federal government’s resolution of its pension problems in the 1980s.

The federal government retained the existing Civil Service Retirement System (CSRS) for existing employees and created a new Federal Employees’ Retirement System (FERS) for new employees. FERS combined a less generous defined benefit plan than CSRS, mandatory enrollment in Social Security, and a new defined contribution plan with extensive employer matching. Although we do not wish to imply that a “one size fits all” solution applies to the very diverse situations that different states face, we nonetheless conclude that the elements of durable, effective, and just reforms for state pension plans will likely include the major elements of the federal reform listed above.

Section II discusses the federal experience with pension reform. Section III discusses the status and recent developments regarding state and local pensions. Section IV discusses the similarities in the two situations and how policy changes structured along the lines of the federal reform could help state and local governments and their employees.

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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