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 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 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 workers, auto workers, janitors, baristas want only Social Security.
The Retirement Savings Act for All Americans (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 and 40 years of tweaks and tax breaks more regressive than the other over half of workers, and over 80% of low-income workers don’t have a retirement plan at work. (See this EPI and New School Chartbook for all things retirement crisis)
Low-income workers don’t have the unions they need nor employers that will voluntarily put money towards their retirement on any meaningful scale.
The Hickenlooper Bill would allow workers to put up to 3% contributions into a safe government sponsored account and workers whose earnings fall below the median earnings – about $60,000 per year, the government would put in 5%. The worker could always change their withholding or opt out but we know that if there is a match, workers keep their money in.
When low-income workers in the federal government plan, the Thrift Savings Plan (TSP), got a generous match 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 five percent matching contribution via 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.
The Retirement Savings Accounts would remain owned by workers throughout their lifetimes, and workers would be able to stop and start contributions as they so desire 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 made 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 the population left behind by Secure 2.0. And we need Social Security expansion.
We Need All Levers (Not Attacks) To Secure Retirement
This is not the first time advocates freak-out thinking something will replace their program when it will only complement.
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 because they feared it would reduce insurance demand — it didn’t. Yesterday, Altman and Russell attacked RSAA fearing 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 defend low and moderate 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 comment it provides 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% the FICA payroll tax would have to be about would 30%.
The solution to the nation’s retirement income crisis is not as simple as expanding Social Security alone. The Retirement Savings for Americans Act, currently pending in Congress, is also part of the solution.