The Road to Retirement Security: 5 Ideas for Improvement

As the Employee Retirement Income Security Act (ERISA) marks its 50th anniversary, the state of retirement savings in the United States remains a concern. Many Americans are not adequately preparing for their golden years, and those who are saving often lack a steady income stream. Here, we explore five ideas for improving retirement security:

1. Expand 401(k) Coverage

The biggest issue with 401(k) accounts? Not enough people have them. According to experts, only about half of private-sector U.S. workers are covered by an employer retirement plan. The solution lies in expanding access to 401(k) plans, especially for small businesses and low-income workers. The U.S. government could incentivize companies to offer retirement plans by providing tax credits or reduced regulations.

2. Make 401(k)s More Like Pensions

To improve 401(k)s, we can borrow from the best features of traditional pensions. For example, automatic participation and professional investment management would give workers a safety net in their retirement years. Federal legislation can support this effort by mandating greater transparency and consumer protections for 401(k) plans.

3. Ensure Better IRA Investment Advice

Individual Retirement Accounts (IRAs) hold more money ($14.3 trillion) than defined contribution plans ($11.1 trillion), yet they are subject to less regulation. A recent Department of Labor rule requires more financial professionals to act as fiduciaries when advising people on investments that roll over from workplace plans to IRAs. This regulation helps protect workers from conflicted investment advice and ensures that their best interests are served.

4. Rework the System to Make it More Equitable

The tax-deferral features of 401(k) and IRA accounts largely benefit upper-income households. To address this inequity, we can reconsider tax deferral and redirect those tax breaks to low- and middle-income earners. Ending tax deferral or capping it could help reduce income inequality and provide a more robust social safety net.

5. Expand Social Security with New Sources of Revenue

Progressives advocate for a substantial expansion of Social Security benefits to address the retirement income gaps faced by low- and middle-income workers. One proposed solution is to shift the retirement savings tax subsidies to Social Security, using tax revenue from sources like the fossil fuel industry. Targeted increases in Social Security checks would go toward very low-income retirees, but also bolster payments across the income spectrum.

Conclusion

ERISA’s 50th anniversary serves as a reminder that retirement security remains an urgent concern. By expanding 401(k) coverage, making 401(k)s more like pensions, ensuring better IRA investment advice, reworking the system for greater equity, and expanding Social Security, we can improve the lives of millions of Americans in their retirement years.

FAQs

Q: Why is ERISA important?
A: ERISA was passed in 1974 to protect private-sector pensions and provide greater transparency and consumer protections.

Q: What is the current state of retirement savings in the United States?
A: According to the Center for Retirement Research at Boston College, only 18 percent of U.S. private-sector workers have access to traditional pensions, and many struggle to save enough for retirement.

Q: What are the benefits of expanding Social Security?
A: Expanding Social Security benefits would provide a more robust social safety net, reduce income inequality, and help ensure that low- and middle-income workers have a secure retirement.

Q: How can we improve the fairness of the retirement savings system?
A: To make the system more equitable, we can end or cap tax deferral on retirement savings, redirect that revenue to Social Security, and use new revenue sources to fund benefits expansions.

Author: www.nytimes.com

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