September 17, 2012
--- Any new
retirement income tier adopted by the U.S. government should not just target
those without access to a retirement plan, a paper asserts. ---
Researchers from the Center for Retirement Research at
Boston College (CRR) point out that only 42% of private-sector workers are
covered by any type of employer-provided retirement plan. This lack of coverage
creates two types of problems. First, more than one-third of households are not
covered at all during their whole work life and are entirely dependent on
Social Security in retirement. Given the low level of Social Security
replacement rates—particularly for those who claim benefits at 62—this reliance
is likely to produce inadequate retirement income, the paper
says.
Second, with a mobile work force, people are moving in and
out of employer-based coverage, leading to modest accumulations in 401(k)
plans.
Clearly, more retirement saving is needed, but the
researchers contend that designing simpler plans in the hope that they will
appeal to small business has not worked in the past and is unlikely to work in
the future. The researchers conclude that the president’s automatic IRAs,
Senator Harkin’s Promise Funds (See“Retirement Plan Would Be a Win-Win for Working
Families, Employers”)
and state proposals to use public-plan infrastructure to improve private-sector
coverage are all welcome initiatives, but “given the modest replacement rates
from Social Security and the low level of 401(k) balances, the more
comprehensive the additional tier the better.”
The CRR Issue Brief can be downloaded here.
Rebecca Moore