A Review of the Article “Principles in the Design of an Optimal Retirement Income Security System" by Robert L. Brown, FCIA, FSA, ACAS, FIA (Hons), Ph.D.
By Michael Stephens
In the Public Interest, May 2025
Many social insurance retirement systems around the world are facing demographic, fiscal, and political challenges. These pressures are forcing countries and their citizenry to assess the desirable adequacy and sustainability of their overall retirement income systems. That assessment is causing considerable debate, even to the point of stirring political unrest in some countries. The gap between the opposing sides of these debates is, in some cases, widening.
Oftentimes, considerations of social insurance reform are not done in a holistic manner, but rather out of a sole desire to constrain government finances or achieve a desired political outcome. However, as actuaries, we understand the necessity of considering all potential sources of income support in retirement, such as employment-sponsored pensions, personal savings and wealth accumulation, and social insurance. As a profession, we are uniquely positioned to inform policymakers and stakeholders alike of how these and other proverbial puzzle pieces fit together, and how, when one piece is modified, that change can indirectly affect the other pieces through behavioral and other effects. Or alternatively, the implications if individuals’ behaviors do not appropriately respond, or other changes to the retirement system are not made.
If we as a profession are to be a significant participant in this process, I strongly recommend actuaries read Robert Brown’s outstanding paper on the optimal design of national retirement income security systems. Brown’s paper explores an optimal retirement system design as well as many considerations that should be made in designing such a system. He lays out a clear, solid foundation that serves as excellent background for those who are making their first serious foray into this topic as well as for those who are actively engaged in this subject.
Brown frames the discussion of optimal design with five pillars upon which a retirement income security system should be built, focusing primarily on social insurance and employer-sponsored retirement plans. Included throughout the paper are a set of public policy implications for many of his primary design elements. In his discussion of social insurance, he reminds readers of an important aspect that is often overlooked; social insurance is exactly as its name suggests, a form of insurance where risks such as mortality and longevity are pooled and spread across all participants. Additionally, he discusses in detail the continuing debate of whether social insurance plans should be pay-as-you-go or fully funded systems. While this debate is far from concluded, he presents a logical discussion and references to empirical evidence.
Employer-sponsored retirement plans are similarly explored from the perspectives of both employers and employees, including the risks borne by each group, for both defined contribution and defined benefit plans. He expertly interlaces these factors with public policy and social insurance considerations. Brown does not permit his discussion to get drawn into the many details, nuances, and intricacies of employer-sponsored plan design, but stays at a high level and focuses on the big picture of the overall context of retirement security.
Brown also briefly discusses an important but widely overlooked aspect of retirement income security—a minimum benefit structure designed to provide income security to those individuals who may have been unable to work during their life or may have chosen to contribute to society in ways in which they were not financially compensated (e.g., child-rearing or volunteer work). This is an important consideration as social insurance and employment-sponsored plans do not necessarily address the needs of those in or near poverty.
Personal savings, wealth accumulation, and intergenerational wealth transfers, which are the last two of Brown’s pillars, seem to be more of an afterthought in this paper. While there is an abundance of literature on these topics, I find it would have been extremely insightful to explore these aspects more as part of the holistic evaluation of retirement income systems and discuss how these can complement social insurance and employment-sponsored plan policies.
Overall, this was a refreshing and much-needed treatise on the overall design of retirement income security systems. Actuaries who wish to participate in and help lead the efforts to evaluate and explain potential retirement system changes should read this paper to inform themselves of all considerations. The forthcoming challenges will be great, but as a profession, actuaries can be key players in the evolution of retirement systems.
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the newsletter editors, or the respective authors’ employers.
Michael Stephens, ASA, is deputy chief actuary, short-range actuarial estimates, for the U.S. Social Security Administration, and a member of the Social Insurance and Public Finance section council. He can be contacted at Michael.L.Stephens@ssa.gov.