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Helping Workers Save for a Secure Retirement

Tobin Marcus, Assistant to the Chief Economist for the Vice President, discusses the proposed package of retirement initiatives outlined in the President's FY 2011 budget.

The Middle Class Task Force recently announced a number of initiatives that are designed to strengthen the retirement system and help provide a more secure retirement to millions of American workers.  These initiatives are part of President Obama’s FY 2011 budget, and this Administration will be working hard with Congress to get these proposals passed into law this year.

You don’t need us to tell you how important it is to strengthen the retirement system, but in the wake of the financial crisis and the market collapse, it’s become clearer than ever that we need to do more to help  American workers save for a secure retirement.  Many workers have seen their 401(k)s and IRAs decline by thirty or forty percent, and many more have seen the value of their home - the single most important asset for many middle-class families - fall just as far.  So families across the country are acutely feeling the need for us to do more to help provide a secure retirement for hardworking Americans.

But there are also some longer-term problems with the retirement system, and we think it’s important to address those as well.  Far too many workers don’t have access to a retirement plan through their employer, and even among Americans who have been saving since they got their first job, too many are seeing the returns on their savings eaten away by high fees, leaving them with less than they’d hoped for when they retire.

That’s why we’ve proposed this package of retirement initiatives – we want to make sure that Americans have access to good options to save for retirement.

That means making sure more workers have workplace retirement plans by requiring employers who don’t offer a retirement plan at the workplace to automatically enroll their workers in a direct-deposit IRA, to give workers an easy and effective way to save.  Workers will be able to opt out if they choose, and the smallest employers will be exempt, but this proposal will provide an important new way to save for many of the seventy eight million Americans – about half the workforce – who currently do not have a retirement plan at work.

It also means matching the savings of many families to help them save more.  We’re proposing to simplify and expand the Saver’s Credit to provide a fifty percent match on the first $1,000 of retirement savings for families making up to $65,000, and to provide a partial credit for families making up to $85,000.  So if you save $1,000, you get a tax credit for an additional $500 to help you build up your retirement savings.  And we’re proposing to make the credit fully refundable, helping families who are just starting to save a nest egg and helping lower-income families to rise into the middle class.

Finally, it means updating and strengthening regulations to make sure there are good savings options available to American workers.  Too many workers are seeing high fees erode the returns on their retirement savings year after year, so we’re proposing new regulations that would make sure American workers have all the information they need to make the best choices with their retirement savings.

We’re already getting good reactions on these proposals from retirement experts across the ideological spectrum.  For example, Nancy LeaMond, Executive Vice President of AARP, said in a statement,

“Millions of hard-working Americans don’t have access to a traditional pension or a 401(k), making it difficult for them to save for retirement. Studies have shown that when workers have the ability to enroll in an automatic workplace retirement savings plan, they are more likely to save.  AARP firmly believes that the an automatic workplace savings account or “Auto IRA” is a low-cost, high-impact way to help millions of Americans save for their retirement – experts estimate such a proposal could help 50 million Americans. The Auto IRA proposal has earned bipartisan support among leaders in Congress as well as among employers. More importantly, according to a recent AARP survey, eighty percent of Americans support for the proposal as a way to improve individuals’ retirement security.”

Robert Greenstein, Executive Director of the Center on Budget and Policy Priorities, said of our package of retirement initiatives,

“Taken together, these proposals should induce significant increases in retirement saving.  Such an increase in saving would both help families in old age and strengthen U.S. long-term economic growth by increasing the pool of national savings that can be tapped for private investment in new plant and equipment.”

The Corporation for Enterprise Development also praised our efforts to help American workers save more, writing in a statement,

“We commend the Obama Administration for prioritizing asset building as part of their solution to financial distress for America’s middle class families.  The President and his team are right to seek solutions to rising levels of asset poverty.”

Meanwhile, David John at the Heritage Foundation describes our Automatic IRA proposal as a “common-sense idea that could help to increase Americans’ retirement security.”  He writes:

“This simple, easy-to-understand way for workers to save some of their own money each payday is important, because almost 78 million American workers--about half of all workers--are employed by companies that do not offer any sort of pension plan or 401(k)-type retirement saving plan. … The Automatic IRA has wide bipartisan support from the left and right and was endorsed in 2008 by both the McCain and Obama campaigns. It is a simple, cross-ideological, and practical solution to a serious problem.”

Of course, we don’t think these proposals will solve the problem of retirement insecurity overnight; especially in the aftermath of the market crash, it will take time and hard work for Americans to build up their retirement savings.  But we believe these initiatives are an important step toward making sure that American workers have good choices to save for the secure retirement they deserve.

Tobin Marcus is the Assistant to the Chief Economist for the Vice President