Nearly everyone agrees we have a retirement income crisis, and ordinary workers don’t have much hope of retiring and maintaining their standard of living if they don’t have both retirement savings and expanded Social Security. One doesn’t replace the other. Workers need both. Since we crushed unions and the wealthy got their tax cuts in many forms, the idea of retirement has slipped from view. All advocates of worker income security need to concentrate on the many levers to secure retirement income.
Yesterday in The Hill, Nancy J. Altman — a respected analyst of Social Security costs and benefits and who had been a key source for me to understand the complexities of government provision of wealth and social insurance — and her co-author made some puzzling mistakes explaining Senators John Hickenlooper’s and Thom Tillis’ bill to help all workers accumulate assets to supplement Social Security.
When low- and moderate-income workers unionize, they bargain to divert some of their pay to accumulate retirement wealth in defined benefit and defined contribution plans. No teacher aide, home health care worker, mine worker, auto worker, janitor, or barista wants only Social Security.
The Retirement Savings for Americans Act (RSAA)
I urge Nancy to take a second look at the bill she called a “Wall Street giveaway.” It solves the problem she cares about, since over half of workers don’t have a way to save for retirement at work: 40 years of regressive tweaks and tax breaks have hit these workers harder than the other over half of workers, and over 80% of low-income workers don’t have any retirement plan at work. (For more evidence on all of this, see the Older Workers and Retirement Chartbook by the Economic Policy Institute and the Schwartz Center for Economic Policy Analysis.)
Low-income workers don’t have the unions they need nor employers that will voluntarily put money toward their retirement on any meaningful scale.
Senator Hickenlooper’s legislation would allow workers to put up to 3% contributions into a safe government-sponsored account, while the government would put in 5% for workers whose earnings fall below the median income of about $60,000 a year. Workers could always change their withholding or opt out, but we know that if there is a match, workers keep their money in so they can improve their retirement security.
We have ample evidence that this works. When low-income workers got a generous match in the federal Thrift Savings Plan (TSP), they saved even more for their retirement. Unfortunately, Nancy Altman and James Russell got that part about the Hickenlooper bill wrong. Low- and moderate-income workers would be eligible for up to 5% in matching contributions through a refundable federal tax credit. This would be deposited directly into the employee’s retirement account and would begin to phase out at median income levels.
The Retirement Savings Accounts would remain owned by workers throughout their lifetimes, and workers would be able to stop and start contributions as they wish or as their eligibility allows. Much like the current TSP, participants would be given a menu of simple, low-fee investment options to choose from, including lifecycle funds tied to a worker’s estimated retirement date, or index funds comprised of stocks and bonds.
The Hickenlooper bill would do more to boost retirement income security for working people who need the most help, and certainly for all the people left behind by Secure 2.0. In addition to these important reforms, we also need Social Security expansion.
We Need All Levers (Not Attacks) To Secure Retirement
This is not the first time advocates have freaked out thinking that something will replace their program — when in fact it will only complement it.
The far left attacked Social Security in 1935 because they feared it would weaken the movement for universal pensions. The insurance industry attacked Social Security, fearing it would reduce insurance demand — it didn’t. Yesterday, Altman and Russell attacked RSAA, fearing it might mean less support for Social Security. The American Retirement Association attacks RSAA fearing less support for 401(k)s. We all need to lift up our common goals and defend low- and moderate-income workers’ access to retirement. (I guess universal unionization would also work, since unions bargain for retirement plans.)
I want what Nancy wants. I agree with her when she wrote in defense of a hybrid system in 1988:
The choice to have a hybrid system of retirement income with reliance on subsidized employer provided pensions as well as public insurance is significant, the current system has strengths that might be unavailable in a unitary system. A hybrid system provides flexibility and structuring benefits, important in a complicated economy but difficult to attain under a nationwide universal program. Also, it more easily produces greater diversification of control over vast sums of accumulated assets.
401(k)s are no substitutes for Social Security and we can’t just rely on Social Security alone. Nations that achieve widespread retirement security do so with both advanced-funded and Social Security-type pensions. If the U.S. wanted to reach a target replacement rate of 70% of FICA, payroll tax would have to be about 30%.
The solution to the nation’s retirement income crisis is not as simple as expanding Social Security alone. The bi-partisan Retirement Savings for Americans Act, currently pending in Congress, is a key part of the solution.
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