In response to new studies illustrating how inadequate America’s retirement savings accounts really are, combined with President Obama’s proposed budget calling for a cap on employees’ contributions to their 401k plans, several analysts are launching new proposals to combat the retirement savings shortfall.
Chris Farrell, on Bloomberg News, outlined a suggestion to remove the tax incentives from 401k plans and IRAs, and replace them with an automatic enrollment program. This, he argues, would increase aggregate retirement savings while simultaneously reducing costs to the federal government.
Farrell is not the only one who thinks mandatory savings could be answer to the retirement crisis. Alicia Munnell, director of the Center for Retirement Research, has stated that voluntary savings plans are inadequate to meet the needs of modern retirees, and columnist Dan Kadlec has pointed out that mandatory retirement savings seem to have rescued Australia from a similar dilemma.
Other proposals involve increasing 401k contributions, setting up a Federal Retirement Board or allowing people to simply be “bought out” of their Social Security plans early.
However, some advocates are pushing back against talk of eliminating the tax incentives from current retirement plans, demonstrating that 71% of the money from such incentives flows to families making less than $150,000 a year. A report from the American Society for Pension Professionals and Actuaries concludes that these incentives are the most efficient way to help the average American save for retirement, and that reductions in these incentives would damage the retirement security of workers. About two-thirds of workers currently hold jobs that offer retirement plans, the report says, and incentives such as these are necessary to maintain, and indeed increase that number in the future.