laying the groundwork for more efficient retirement savings incentives

8/20/2019 Laying the Groundwork for More Efficient Retirement Savings Incentives

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Laying the Groundworkfor More Efficient Retirement

Savings IncentivesBy Christian E. Weller and Teresa Ghilarducci November 2015

WWW.AMERICANPROGRESS.O


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Laying the Groundworkfor More Efficient RetirementSavings Incentives

By Christian E. Weller and Teresa Ghilarducci November 2015


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1 Introduction and summary

4 Goals and principles of reform

7 Five possible ways to get to more efficient savings incen

16 Conclusion

18 Endnotes

Contents


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1 Center for American Progress | Laying the Groundwork for More Efficient Retirement Savings Incentives

Introduction and summary

Americans wan o be financially secure hroughou heir reiremen years. While

Social Securiy offers a basic income o almos everybody, mos people need o

save a lo o money on heir own o be able o enjoy he reiremen hey envision.

However, people ofen encouner subsanial obsacles o saving more money, such

as low income, lack o reiremen benefis rom heir curren employers, and limied

help rom exising savings incenives in he ax code. Hence, ewer and ewer work-

ing-age households can expec o mainain heir sandard o living in reiremen.One widely cied 2013 esimae rom he Cener on eiremen esearch showed

ha a litle more han hal52 perceno all working-age households were a risk

o having o cu back heir consumpion in reiremen, up rom 31 percen in 1983.1

As a resul, a growing number o people are more likely o reire in povery, o expe-

rience economic hardships such as no being able o afford necessary medicaion,

and o have o rely on public assisance and amily members or financial suppor.2

Tis reiremen crisis is real and is only geting worse.

Te U.S. ax code offers financial incenivessuch as conribuions o cerain

reiremen plans no being subjec o ederal income axeso encourage people

o save more money han hey would oherwise. Tese savings incenives exis

under differen rules in a wide variey o reiremen savings accouns, includ-

ing 401(k) plans and individual reiremen accouns, or IRs. Te rules or

hese ypes o plans vary by how much people can conribue each year, he role

employers play in offering hese plans, and when people need o pay axes.

Curren savings incenives, hough, are inefficien. People who need he mos

help o save more or reiremen ofen ge litle or no help. Beter designed sav-

ings incenives ha arge lower-income workersor insance, hose who dono work or an employer ha offers reiremen benefiswould make a real

difference in workers’ reiremen preparedness. Economic research shows ha

low-income people do save or heir uures when offered subsanial financial

incenives.3 An ofen-cied 2005 experimen ha researchers conduced wih


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H& Block in predominanly lower- and middle-income neighborhoods showed

ha offering a 50 percen machpeople received 50 cens or each dollar hey

savedincreased he likelihood ha people paricipaed in an IR rom 3 percen

wihou maches o 14 percen wih a mach, an increase o almos 400 percen.4

And in he same experimen, he amoun ha people who paricipaed in an IR

saved increased sevenold when hey were offered a 50 percen mach.5

Tese are examples o he poenially large benefis o well-argeed savings incen-

ives. I is worh remembering, however, ha more efficien savings incenives

and greaer access o hese incenives are no he only fixes necessary o address

he looming reiremen crisis or many low- and middle-income people. Bu hey

would be imporan seps in he righ direcion.

Wha exacly are he problems wih he ex ising incenives? Te ederal gov-

ernmen and saes orego revenue o more han $100 billion annually o help

people save, bu he effec on increasing savings is ofen small or negligible.6 Arecen esimae suggess ha each $100 in savings incenives offered under he

curren srucure increases savings by only $1a low payoff or a big inves-

men.7 Te reason or his small effec is ha incenives are skewed oward

high-income earners, requenly no reaching he Americans who need he mos

help wih saving. And savings incenives are overly complex, possibly slowing

savings or people who are unaware o hese benefis or do no ully undersand

hem. Moreover, how much people can possibly benefi rom savings incen-

ives depends o a large degree on wheher or no hey work or an employer

ha offers reiremen benefis; employers ha do can make i easier or heir

employees o qualiy or savings incenives. Pu differenly, people who do no

ge reiremen benefis a work likely also receive ewer savings incenives. Te

resul is a well-inenionedbu dysuncionalax benefi sysem ha is in

need o reorm o change he way ha people save or reiremen.

Because he curren sysem only works or he lucky ew, i does no offer much

assisance o he vas majoriy o Americans who are rying o build a beter uure.

Only households in he op fifh o he income disribuion end o have resources,

receive subsanial ax incenives, and have significan access o employer and

nonemployer reiremen plans o benefi rom curren savings incenives. I is, orexample, only among households in he op fifh o he income disribuion ha a

subsanial majoriy o households have one or more ax-advanaged orm o sav-

ings, while he majoriy o households in he res o he income disribuionhe

botom 80 percenhave no ax-advanaged savings.8


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eorming he ax code o make i more efficien should prioriize reundable ax

credis over new ax deducions; emphasize progressive savings maches ha offer

relaively higher benefis o lower-income households; creae savings incenives

ha are simple o use; and esablish new savings opions, such ha gaining access

o savings incenives depends less on employers offering reiremen plans. Federal

and sae policymakers should consider five imporan seps ha could makesavings incenives more atainable and efficien. Te benefis o hese seps would

largely go o he Americans who need he mos help saving more, including lower-

income workers and people who work or employers ha do no offer reiremen

benefis. Te five policy recommendaions include:

1. Make he Saver’s Credi ully available o lower-income households

2. Esablish and expand progressive savings maches

3. Simpliy reiremen savings incenives by sreamlining rules

4. Limi he auomaic increases o ax deducions

5. Creae simple, low-cos, and low-risk opions or people o save or reiremenouside o employer plans

Policymakers should pursue hese seps o ensure ha more middle-class

Americans enjoy greaer benefis rom exising reiremen savings incenives. All

five recommendaions would benefi lower-income earners, especially hose who

work or employers ha do no offer reiremen benefis.

Since a single repor canno possibly address all poenial ax reorms, his repor

begins by highlighing a ew basic reorm principles ha would make savings

incenives more efficien o guide he subsequen recommendaions. Te repor

hen summarizes he main problems ha underlie he inefficiencies o curren sav-

ings incenives,9 ollowed by recommendaions o address hese problems.

A beter nework o argeed savings incenives and supporing policies would go a

long way oward addressing he looming reiremen crisis.


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Goals and principles of reform

Savings incenives should be reormed o address he growing reiremen crisis.

Policy iniiaives can bes address he crisis by creaing reiremen savings or hose

who demonsrably need he mos help o save. Tis includes low-income house-

holds and people who work or employers ha do no offer reiremen plans. Tese

policy reorms will work bes i hey ollow a ew basic principles developed here

o guide he subsequen reorm discussion. eiremen savings incenives are large

and complex; hereore, he recommendaions ha ollow hese principles are

imporan specific examples, bu hey do no encompass all possible reorm seps.Tese principles can help inorm uure discussions on savings incenives reorms,

including hose ha are no specifically addressed in his repor.

Retirement savings incentives should come in the form

of refundable tax credits rather than new tax deductions

Exising savings incenives ypically come in he orm o ax deducions, bu ax

credis would beter arge assisance o hose who need he mos help o save more.

Consider wha ypically happens when households conribue o a reiremen

savings accoun. Households deducor, in ax parlance, excludeheir

reiremen savings conribuions rom heir curren axable income10 and,

hus, reduce he amoun o income subjec o axaion. Te ederal ax code is

progressive; in oher words, higher-income earners pay higher marginal axes

he axes due on heir las dollar earnedhan lower-income earners. Because

higher-income earners ace higher marginal income axes han lower-income

earners, hey have a sronger incenive o use ax deducions o reduce heir ax-

able income han lower-income earners do.11

Te highes ax brackeor hose making more han $406,750 individually or

$457,600 joinly per year in 2014is 39.6 percen.12 Earners in his ax bracke,

or example, would lower wha hey owe on heir ederal income axes in he


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curren year by 39.6 cens or each dollar ha is conribued o an eligible 401(k)

or IR. Low-income earners, in comparison, may ace a marginal ax rae o 10

percen and hus save only 10 cens in curren year income axes or each dollar

ha hey conribue o a reiremen savings accoun.

Now, compare deducions o ax credis, which work differenly han ax deduc-ions o incenivize savings. Wih ax credis, households’ behavior is direcly

rewarded, regardless o how much income hey earn and hus wha heir marginal

ederal income ax rae is. Wih a ax credi or reiremen savings, households may

receive a fixed percenage o he amoun hey saved in a given year. A ax credi o

20 percen means, or insance, ha a household ha saved $1,000 or reiremen

in a given year would receive $200 a ax ime. All households would receive he

same ax benefi rom a ax credi as long as hey save he same amoun and he ax

credi is reundableno dependen on wha people owe in ederal income axes.

ax credis consequenly can offer larger benefis o lower-income households

han ax deducions since low-income households may ace low or zero marginalax raes and hus no immediae ax incenives rom ax deducions.

ax credis work bes as savings incenives or low-income households i hese ax

credis are reundable.13 eundable ax credis are independen o he amoun in

ederal income axes a household owes, while nonreundable ax credissuch as

he curren Saver’s Credi14are limied by he amoun o ederal income axes a

household owes. Households ha do no owe any ederal income axes receive no

money rom a nonreundable ax credi, even i hey oherwise qualiy or i.

Progressive savings matches can offer lower-income

households extra help in saving for retirement

eundable ax credis alone are no enough o ge lower-income households o

save wha hey need or reiremen. Policymakers can srucure reundable ax

credis o offer greaer help in saving or reiremen o lower-income households.

Te idea is o sill reward savings bu offer lower-income households more o a

helping hand.

Low-income households, or insance, could ge a ax credi ha is equal o 100

percen o he amoun hey save, while middle-income households may ge only

50 percen and high-income households ge 25 percen o each dollar hey save,

up o a predeermined maximum.


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Savings incentives should be simple to use

Complexiy hurs all bu he mos sophisicaed households because i requires

people o make muliple choices on where, when, and how much o save or

reiremen. Each such choice is raugh wih he possibiliy o making he wrong

choice and inadverenly incurring excessive coss and risks. Many householdsevenually decide no o make a choiceha is, no o saveraher han ace

he possibiliy o making he wrong one. Creaing a muliude o savings incen-

ives wih separae ye inerwoven rules impedes savings o some degree.15 Ta

is, people do no save as much as a resul o he ax incenives as hey would i

he savings incenives were simpler.

The value of savings incentives should depend less on

employers’ decision to offer retirement plans at work

Working or an employer ha offers reiremen benefis is an imporan par

o saving or reiremen, bu ewer and ewer employers offer such reiremen

plans and many employers have cu back on he amoun hey conribue o heir

employees’ reiremen benefis.16 Te goal is o give workers addiional and easy-

o-use opions o save or reiremen beyond he reiremen benefis offered by

heir employers raher han o replace employer-based benefis.

Policy reorms ha ollow hese principles would make a den in he looming reire-

men crisis. Creaing reundable ax credis, simplified savings incenives, and new

and easy-o-use savings vehicles ouside o he employer-employee relaionship

would increase he number o people who save or reiremen. Such reorms would

also increase he amoun ha people already save or reiremen. Again, lower-

income earners and workers whose employers offer no or ew conribuions o

reiremen plans would especially benefi rom reorms ha ollow hese principles.

Te winners o policy reorms ha ollow he above principles would be he house-

holds ha benefi litle rom he exising sysem and experience he larges shoralls

in reiremen preparedness, paricularly lower-income households.17


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Five possible ways to get to

more efficient savings incentives

As explained above, exising savings incenives benefi higher-income earners sig-

nificanly more han low-income earners,18 and he unequal disribuion o savings

incenives ollows in par rom he ac ha exising incenives ypically come in

he orm o ax deducions. Te ollowing five recommendaions would help make

savings incenives more efficien.

1. Make the Saver’s Credit fully availableto lower-income households

Higher-income earners benefi a lo more rom exising savings incenives no jus

in absolue dollar erms, bu also relaive o heir income. Figure 1 shows he esi-

maed amoun o ne pension conribuions and earnings on reiremen accouns

as a share o afer-ax income by income percenile in 2013. Households in he op

fifh o he income disribuion go ax incenives ha are equal o 3.1 percen o

heir income, which is nearly double he 1.8 percen or households in he second-

highes fifh o he income disribuion.19 A he same ime, households in he

lowes fifh o he income disribuion barely benefied rom he savings incenives

and, on average, only received 0.4 percen o income.

Designing a ax credi ha is reundable could help level savings incenives or

low-income and middle-income households so ha hese households are more

adequaely prepared or reiremen.

Te U.S. ax code currenly offers an imporan ax credihe eiremen

Savings Conribuions Credi, or Saver’s Crediha arges lower- and middle-

income households o save more or reiremen.20

People can receive a mach o50 percen, 20 percen, or 10 percen o heir savings, depending on heir income,

such ha lower-income earners receive a higher percen mach han higher-

income earners.


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Bu his ax credi does no work as well in helping low-income earners save or

reiremen as i could because i is nonreundable.21 Many people who qualiy or

his credi are no aware o i,22 and many eligible low-income earners radiionally

do no receive he Saver’s Credi.23 A deailed sudy comparing he effeciveness o

he Saver’s Credi wih an experimenal mach adminisered in 2005 hrough a ax

preparerH& Blockound ha he experimenal measure was more effec-

ive in geting lower-income people o save. Each clien preparing a ax reurn in

paricipaing H& Block offices was randomly assigned o no mach, a 20 percen

mach rae, or a 50 percen mach raeup o a maximum $1,000-dollar mach

rom H& Blockor heir conribuions. Te conribuions wen ino a reire-

men savings produc offered by H& Block, called he X-IR. Higher maches

increased he number o people who saved and he amouns ha hey saved. Te

researchers concluded ha he Saver’s Credi was no as effecive as his easier-o-

use mach in par because he Saver’s Credi’s nonreundabiliy made i difficul

or people o know wheher hey would be eligible or he credi and hus wheher

hey should save hroughou he year.24 Te botom line is ha he Saver’s Credi’s

nonreundabiliy appears o pose an obsacle o is abiliy o ge more low-income

households o save more or reiremen.

Te soluion is o make he Saver’s Credi reundable so ha all low-income ax

payers can beter plan or his incenive and ge exra help saving or reiremen.

Te idea o make he Saver’s Credi reundable enjoys widespread25 and even

biparisan suppor.26 Doing so would offer subsanial assisance in saving or

reiremen or low-income and many middle-income households.

FIGURE 1

Net pension contributions and earnings as a share of after-tax income

By income percentile in 2013

Source: Congressional Budget Office, “The Distribution of Major Tax Expenditures in the Individual Tax System” (2013), table 2, availableat http://www.cbo.gov/sites/default/files/43768_DistributionTaxExpenditures.pdf. All figures are in percent of income.

0%

1%

2%

3%

Bottomquintile

Secondquintile

Middlequintile

Fourthquintile

Topquintile

81st to 90thpercentile

91st to 95thpercentile

96th to 99thpercentile

Top 1percent

0.4% 0.7% 1.2% 2.0% 2.0% 2.7% 1.7%1.6%0.8%


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2. Establish and expand progressive savings

matches for retirement

Making exising credis reundable may no be enough o offse he growing shor-

all in American reiremen savings. Lower-income earners may need addiional

incenives o save or reiremen since hey disproporionaely sruggle rom weakand uncerain labor markes and a lack o employer-provided benefis.27 Such

addiional effors are commonly known as progressive savings maches since hey

offer greaer assisance o lower-income earners han o higher-income ones rela-

ive o each dollar saved.

Several previous proposals have been aimed a creaing progressive savings

maches or reiremen savings, as discussed in a Cener or American Progress

issue brie by Chrisian Weller and Joe Valeni in 2013.28 In he lae 1990s,

Presiden Bill Clinon proposed Universal Savings Accouns, or USAs, o help

people save ouside o Social Securiy. Under his proposal, workers couldconribue up o $1,500 annually o he USAs. Tis annual conribuion would

have included an auomaic conribuion o $400 per year or he lowes-income

workers plus 100 percen maching conribuions or he firs $550 saved by work-

ers.29 o be clear, low-income workers would have had o conribue only $550

o heir own money under his proposal, wih he ederal governmen providing

an addiional $1,050 in differen savings incenives so ha hey could have saved

$1,500 in oal each year. Te savings incenives, however, would have declined

relaive o each dollar saved as people’s incomes wen up. Moreover, workers wih

annual earnings o more han $50,000 could have only qualified or maches rom

he USAs i heir employer did no offer a reiremen plan a work.30

Presiden Barack Obama included a more modes proposal in his fiscal year 2011

budge. His proposal would have expanded eligibiliy or he Saver’s Credi, which

includes higher credis relaive o each dollar saved or lower-income earners, o

join ax filers earning as much as $85,000raher han he hen-curren limi o

$57,500in addiion o making he credi reundable.31

Addiional proposals rom members o Congress in recen years could similarly

improve savings incenives or lower-income workers because he proposals ocuson maches or savings and offer higher maches o lower-income earners han

o higher-income ones. For insance, he Savings or American Families’ Fuure

Ac, or H.. 837, sponsored by ep. ichard Neal (D-MA) in 2013, would have

expanded eligibiliy or he Saver’s Credi and direcly deposied he credi ino


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axpayers’ reiremen accouns. And ep. José Serrano (D-NY) inroduced he

Financial Securiy Credi Ac, or H.. 2917, in 2013, which included a 50 percen

mach on he firs $1,000 saved by low- and moderae-income workersdefined

as single filers earning less han $41,650 and join filers earning less han $55,000.

People could have deposied he mach ino a reiremen accoun, educaion

savings accoun, U.S. savings bond, cerificae o deposi, or even some savingsaccouns, provided ha amilies held ono he savings or a leas eigh monhs.32

Te botom line is ha Congress could expand reundable credis o millions o

Americans who save very litle or reiremenand, hus, do no benefi rom

exising savings incenivesby increasing income limis and he generosiy o

savings maches. Te combinaion o higher income limis and more generous

maches would offer low-income and many middle-income households desper-

aely needed help o save more or reiremen.

3. Simplify retirement savings incentives by streamlining rules

Curren reiremen savings incenives apply o a wide variey o reiremen savings

opions, such as 401(k) plans, IRs, and oh IRseach wih a differen se o

ax rules. Te combinaion o many differen savings opions wih separae rules,

especially ax reamens, makes savings incenives complex. Complexiy especially

hurs household savings since people generally have o make acive decisions o

save money on heir own and have more possibiliies o make decisions ha can

adversely affec heir reiremen savings. Beore people decide where and how

much o save, hey firs mus work hrough he complicaed process o figuring ou

which savings incenives are available o hem. As he complex sysem hinders many

households’ atemps o save, hey do no ully ake advanage o he exising ax

incenives. Many people simply do no save or do no save as much as hey would i

savings were made simpler and easier. Simplificaion should be a key componen o

ax reorm effors led by Congress because simpliying savings incenives would lead

more households o sar saving and increase he amoun o heir savings.

Making savings simpler has wo separae aspecs. Firs, simplificaion means

combining reiremen savings incenives ino ewer ax-advanaged savings orms,sreamlining he exising muliude o ax-advanaged reiremen savings. A number

o proposals have ouched on his kind o simplificaion over ime. For insance,

Eugene Seuerle o he Urban Insiue and Pamela Perun, hen o he Aspen

Insiue, proposed sreamlining 401(k)-ype reiremen plans by moving 403(b)

plans, SIMPLE IRs, and SIMPLE 401(k) plans, as well as all sae harbor plans


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or reiremen plans ha give employers some regulaory relie i hey make i easy

or people o saveino heir proposed Super Simple plans.33 Also, in 2005, he

Presiden’s Advisory Panel on Federal ax eorm under Presiden George W. Bush

recommended moving all employer-based reiremen plans, such as 401(k) plans

and 403(b) plans, ino a Save a Work plan and combining all oher reiremen plans

ino a Save or eiremen plan ha would be available o all workers.34

And morerecenly, Chrisian Weller and Sam Ungar, hen a he Cener or American Progress,

discussed he advanages and drawbacks o combining all ederal savings incenives

ino one ax credi in 2014.35 Moreover, Brown Universiy’s John Friedman pro-

posed combining he various reiremen accouns ino a single Universal eiremen

Savings Accoun in 2015.36 Te botom line is ha a number o possibiliies exis o

simpliy reiremen savings incenives, and such simplificaion would likely increase

savings, especially among households wih less income and savings.

Second, simplificaion also means making i easier or people o save or reire-

men so ha hey can more readily ake advanage o exising savings incenives.Tere has been a general rend oward so-called auomaic savings eaures. Te

wo eaures mos relevan o his discussion are auomaically enrolling people

in a workplace reiremen plan and auomaically increasing paricipans’ savings

raes. Employees can sill op no paricipae, bu because o ineria, many will

coninue o paricipae in heir employer’s 401(k) plan once hey are enrolled. Te

Pension Proecion Ac o 2006 offered employers some regulaory reliesae

harbor rulesi hey included hese and a ew oher auomaic eaures in heir

401(k) plans.37 Making savings auomaic increases he number o people who

save or reiremen and he amoun ha hey save, hus raising heir access o

ederal savings incenives. Te vas majoriy o American households would likely

benefi rom easier and simpler savings.

One o he mos prominen examples o simpliying savings by making decisions

auomaic is so-called auomaic enrollmen. Wih his reiremen savings plan

design, employees are auomaically enrolled in heir employer’s reiremen plan

as long as he employer offers such a plan. Employees can hen op ou o he

reiremen plan, bu many will decide o coninue saving once hey are enrolled

due o ineria in making acive decisions. Paricipaing in an employer’s reiremen

savings plan, such as a 401(k) plan, hen gives many more people access o heiremployer’s maching conribuions, as well as he concomian savings incenives,

which help hem build savings aser. In he pas, reiremen savings plans ypically

required employees o sign up or an employer’s plan or op in, bu many ailed o

do soagain, ofen because o ineria.


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Te Employee Benefi esearch Insiue, or EBI, creaed a simulaion model

based on he overwhelming majoriy o 401(k) plans and people in hem, which

allows researchers o assess he long-erm effecs o swiching rom an op-in o op-

ou approach hrough auomaic enrollmen.38 Figure 2 shows EBI’s esimaes or

he median worker’s oal reiremen savings relaive o final income a reiremen

or workers who were beween he ages o 25 and 29 in 2010 wih volunary enroll-menop incompared o auomaic enrollmenop ou. Tese esimaes,

based on real lie reiremen plans and workers, show ha auomaic enrollmen

resuls in much higher reiremen savings or workers a all income levels as long

as workers coninuously save. ypical reiremen savings or workers in he lowes

quarer o he earnings disribuion could be as high as five imes workers’ final earn-

ings when hey reire wih auomaic enrollmen, compared o only 8 percen wih

volunary enrollmen. Tis large improvemen is greaer han he improvemens or

higher-income earners in par because auomaic enrollmen has he bigges benefi

among low-income earners in erms o geting more people o save, paricularly

hose who ofen do no paricipae in a reiremen plan a work.39 (see Figure 2)Tese bes-case esimaes show ha auomaic enrollmen can have a subsanial

effec on reiremen savings, especially or low- and middle-income workers.

FIGURE 2

Simulated 401(k) accumulations at retirement as a share

of final earnings for workers ages 25–29 in 2010

Earnings quartile

Note: All figures show the median estimated value. It is also important to note two caveats. First, the results are based on data from thelargest employers and thus cannot be readily extrapolated to smaller employers. Second, the estimates rest on the assumption that a

young worker, once covered by a 401(k) plan, will continuously be covered by a 401(k) plan until retirement. These assumptions arelikely leading to substantial overstatements of the effect of automatic enrollment on typical low-wage workers. These numbers show

how well low-wage workers could do under almost ideal circumstances, working for a large employer with a 401(k) plan.

Source: Jack VanDerhei, "The Impact of Automatic Enrollment in 401(k) Plans on Future Retirement Accumulations: A Simulation Study

Based on Plan Design Modifications of Large Plan Sponsors" (Washington: Employee Benefit Research Institute, 2010), available athttp://www.ebri.org/pdf/briefspdf/EBRI_IB_04-2010_No341_Auto-Enroll1.pdf.

Voluntary enrollment

Automatic enrollment

Lowest quarter Second-lowest

quarter

Second-highest

quarter

Highest quarter

496%

8%

596%

114%

649%

225%

683%

427%

800%

600%

400%

200%

0%


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4. Limit the automatic increases of tax deductions.

oday, greaer benefis go o high-income earners, while ewer benefis are avail-

able o lower-income earners. Par o he disproporional benefi o savings incen-

ives o high-income earners sems rom he ac ha high-income earners are

more likely han low-income people o benefi rom he maximum conribuionso employer-sponsored reiremen plans, which are larger han or plans ha are

no employer based. High-income earners are more likely o have he money o

conribue a he maximum, and hey are more likely o work or an employer ha

offers a reiremen plan.40 In he end, maximum conribuion limis or 401(k)

plans are more meaningul or high-income earners han or low-income ones.

Te maximum amoun ha people can conribue o heir reiremen savings

accouns increases wih inflaion in a leas $500 incremens. Te conribuion

limi or employee conribuions o 401(k) plans in 2014 was $17,500, and i

rose o $18,000 in 2015.41 Similar increases occur or he maximum amoun haemployers can conribue. Tese maximum conribuion limis and heir increases

are meaningless or he vas majoriy o people. Mos people do no conribue

near he maximum, so an increase does no change anyhing or hem.42 Pu

differenly, he ax revenue los rom increasing he maximum conribuion only

benefis a small minoriy o people saving or reiremen.

Policymakers have ried over ime o limi he amoun o ax deducions ha

people can ake, or insance, o pay or he expansion o he Saver’s Credi.

Presiden Obama proposed in his fiscal year 2016 budge limiing he oal value

o all iemized deducions, including reiremen conribuions, o 28 percen o

income. Tis proposal would sill allow or regular increases o he oal ax deduc-

ions, as long as incomes go up, bu i would lower he maximum amoun o oal

ax deducions.43 Similarly, ep. David Camp (-MI) proposed, among a num-

ber o oher ax changes, limiing he value o conribuions as ax deducions o

reiremen accouns in his 2014 ax reorm proposal by suspending he auomaic

increases in he maximum conribuion limis or a decade.44 Presiden Obama’s

budge proposal also limied addiional reiremen conribuions i he oal value

o reiremen savings exceeded $3.4 million.45

Imporanly, policymakers o all sripes have been looking or ways o reduce he

inefficiencies o he exising savings incenives by limiing he maximum reire-

men savings incenives. Policymakers could accomplish his by lowering he


17/24


maximum reiremen conribuion amouns or by slowing he growh rae o hese

maximum amouns. Tis would ree up governmen resources ha are currenly

used inefficienly and could be paired wih more argeed reiremen savings o

help low- and middle-income households save more or reiremen.

5. Create simple, low-cost, and low-risk options for people

to save for retirement outside of employer plans

People are more likely o benefi rom savings incenives i heir employer offers

a reiremen plan. Te sad ac is ha many lower-income workers do no parici-

pae in a reiremen plan a work, largely because heir employers do no offer such

reiremen benefis. Figure 3 shows he share o privae-secor wage and salary

workers beween he ages o 21 and 64, who paricipae in a reiremen plan

eiher a defined benefi, or DB, pension or defined conribuion, or DC, reire-

men savings accoun. In 2013, he las year or which hese daa are available,only 15.2 percen o hose earning beween $10,000 and $20,000 paricipaed in

a reiremen plan, or less han one-ourh he share o people who earned $75,000

or more. (see Figure 3) Sill, even among he highes-income earners, only wo-

hirds paricipaed in an employer-provided reiremen plan, leaving many upper-

middle-income earners o build heir own reiremen savings wih less beneficial

ax reamen han or employer-based plans.

FIGURE 3

Share of private-sector wage and salary workers ages 21–64 whoparticipated in an employer's retirement plan in 2013, by income

Annual earnings

Source: Craig Copeland, "Employment-Based Retirement Plan Participation: Geographic Differences and Trends, 2013" (Washington:Employee Benefit Research Institute, 2014), available at http://www.ebri.org/pdf/briefspdf/EBRI_IB_405_Oct14.RetPart.pdf.

Less than $10,000

$10,000 to $19,999

$20,000 to $29,999

$30,000 to $39,999

$40,000 to $49,999

$50,000 to $74,999

$75,000 and more

7.0%

15.2%

30.4%

45.1%

52.9%

58.8%

66.9%


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Federal and sae lawmakers should creae more ways o save or reiremen ou-

side o employer-sponsored reiremen plans, which could improve access o hese

ax benefis or households ha, on average, are more likely o all shor wih heir

reiremen savings. Alernaive pahways o reiremen savings can help shrink

savings gaps by income. Overall, saving or reiremen would be easier because

benefis would acually be accessible o people who oherwise would have litle orno access o savings incenives.

One imporan sep or policymakers would be o creae more low-cos, low-risk,

and easily accessible savings opions ouside o he employer-employee relaion-

ship.46 Having saeand ederalgovernmens sponsor savings opions or

privae-secor workers grows ou o hree realizaions. Firs, households need help

saving hrough low-cos and low-risk opions since hey oherwise incur oo many

coss, ace oo much risk exposure, and end up saving oo litle or reiremen.

Second, he curren policy emphasis on geting employers o offer such reire-

men benefis o heir employees has subsanial gaps, leaving many households wihou enough savings. And hird, saes have he resources and experise o offer

reiremen savings opions o privae-secor workers because hey already offer

reiremen savings o public-secor employees and ofen sponsor educaion sav-

ings o all households. Having saes sponsor a reiremen savings opion may be a

suiable way o offer households more low-cos, low-risk savings.

Te specific design o a sae-sponsored reiremen plan would vary depending

on a ew key choices ha Congress and sae legislaures would need o make.

Lawmakers, or insance, would need o decide who could paricipae in such

reiremen plans, wheher conribuions would be volunary or mandaory, and

wheher such new savings opions would also include secure reiremen payous,

such as annuiies, ha pay a lieime sream o income.47 Te ederal governmen

has creaed myRs ha are inended o make i easier or people o save or he

uure.48 Tis could be a firs sep in creaing a ederally sponsored reiremen sav-

ings opions. A number o sae governmens, including Caliornia, have sared

o look ino offering reiremen savings plans o privae-secor employees who

currenly do no have reiremen plans a work.49 Greaer access o low-cos, low-

risk savings opions should increase he number o people who save and possibly

he amoun ha people save since hey would heoreically enjoy lower coss andewer risks han hey currenly do wih IRs. Te increase in savings, and in he

number o addiional people who ake advanage o savings incenives, would

depend on he exac policy choices.


19/24


Conclusion

Te U.S. ax code offers a wide variey o incenives or people o save or reire-

men. Bu hese savings incenives are inefficien because hey do no increase

savings as much as alernaive incenives would and are ineffecive mechanisms

o ge people o save more. Federal and sae policymakers can pursue a number

o smaller reorm effors shor o a massive overhaul o he enire ax code o

improve reiremen savings incenives. Beter savings incenives would go a long

way oward addressing he impending reiremen crisis or America’s middle class

and give amilies are realisic sho a a dignified reiremen.


20/24


About the authors

Christian E. Weller is a Senior Fellow a he Cener or American Progress and

a proessor o public policy a he McCormack Graduae School o Policy and

Global Sudies a he Universiy o Massachusets, Boson.

Teresa Ghilarducci is he Bernard L. and Irene Schwarz chair in economic policy

analysis in he Deparmen o Economics and he direcor o he Schwarz Cener

or Economic Policy Analysis a Te New School in New York.


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Endnotes

1 Alicia H. Munnell, Wenliang Hou, and Anthony Webb,“NRRI Update Shows Half Still Falling Short” (Boston:Center for Retirement Research at Boston College,2014), available at http://crr.bc.edu/wp-content/up-loads/2014/12/IB_14-20-508.pdf.

2 Christian E. Weller and David Madland, “Keep Calmand Muddle Through: Ignoring the Retirement CrisisLeaves Middle-Class Americans with Little EconomicControl in Their Golden Years” (Washington: Centerfor American Progress, 2014), available at https://www.americanprogress.org/issues/economy/report/2014/08/06/95222/keep-calm-and-muddle-through/.

3 Esther Duflo and others, ‘‘Saving Incentives for Low-and Middle-Income Families: Evidence From a FieldExperiment With H&R Block,’’ Quarterly Journal ofEconomics 121 (4) (2006): 1311–1346; Gregory Mills andothers, ‘‘Evaluation of the American Dream Demonstra-tion: Final Evaluation Report” (Cambridge, MA: Abt As-sociates, 2004), available at http://www.abtassociates.com/reports/ES-Final_Eval_Rpt_8-19-04.pdf.

4 Duflo and others, ‘‘Saving Incentives for Low- andMiddle-Income Families.”

5 Ibid.

6 For supplemental data, see Congressional BudgetOffice, “The Distribution of Major Tax Expenditures inthe Individual Tax System” (2013), Figure 2, available athttps://www.cbo.gov/publication/43768. For one esti-mate on lost state tax revenue, see Teresa Ghilarducciand others, “Retirement Savings Tax Expenditures: TheNeed for Refundable Tax Credits” (New York: The NewSchool, 2015), available at http://www.economicpoli-cyresearch.org/images/docs/retirement_security_back-ground/Retirement_Savings_Tax_Expenditures.pdf .

7 See, for example, Raj Chetty and others, “Active vs. Pas-sive Decisions and Crowd-Out in Retirement SavingsAccounts: Evidence from Denmark,” Quarterly Journal ofEconomics 129 (3) (2014): 1141–1219.

8 Christian E. Weller, Retirement on the Rocks: Why Americans Can’t Get Ahead and How New Savings PoliciesCan Help (New York: Palgrave Macmillan, forthcoming),Chapter 10.

9 See Christian E. Weller and Teresa Ghilarducci, “TheInefficiencies of Existing Retirement Savings Incentives”(Washington: Center for American Progress, 2015),available at https://www.americanprogress.org/issues/economy/report/2015/10/30/124315/the-inefficien-cies-of-existing-retirement-savings-incentives/.

10 This report uses the common term “tax deductions”to describe the tax preferences for retirement savingsaccounts rather than the term “exclusion,” which is com-mon in many tax publications.

11 See also Teresa Ghilarducci, When I’m Sixty-Four: The Plot Against Pensions and the Plan to Save Them (Princeton,

NJ: Princeton University Press, 2008).

12 Internal Revenue Service, 1040 Tax Tables 2014 (Depart-ment of the Treasury, 2014), available at http://www.irs.gov/pub/irs-pdf/i1040tt.pdf .

13 Empirical research finds that savings matches, whichare economically equivalent to refundable credits,successfully get people to save a lot more than theyotherwise would. Deductions, in comparison, havea fairly small effect on savings. For matches, see, forinstance, Duflo and others, ‘‘Saving Incentives forLow- and Middle-Income Families”; Mills and others,‘‘Evaluation of the American Dream Demonstration.” Forthe impact of deductions, see, for example, Raj Chettyand others, “Active vs. Passive Decisions and Crowd-Outin Retirement Savings Accounts.”

14 William Gale, J. Mark Iwry and Peter R. Orszag, “TheSaver’s Credit: Expanding Retirement Savings forMiddle- and Lower-Income Americans” (Washington:

The Brookings Institution, 2005), available at http://www.brookings.edu/views/papers/20050310orszag.pdf .

15 Shlomo Bernartzi and Richard Thaler, “Heuristics andBiases in Retirement Savings Behavior,” Journal ofEconomic Perspectives 21 (3) (2007): 81–104; Gary R.Mottola and Stephen P. Utkus, “Can There Be Too MuchChoice in a Retirement Savings Plan?” (Valley Forge,PA: Vanguard Center for Retirement Research, 2006) ;Sheena Sethi-Iyengar and others, “How Much Choice is

Too Much? Contributions to 401(k) Retirement Plans.” InOlivia S. Mitchell and Stephen P. Utkus, eds., Pension De-sign and Structure: New Lessons from Behavioral Finance (New York: Oxford University Press, 2004).

16 Weller, Retirement on the Rocks.

17 Edward Wolff, “Household Wealth Inequality, RetirementIncome Security, and Financial Market Swings 1983 to2010.” In Christian E. Weller, ed., Inequality, Uncertaintyand Opportunity: The Growth of Finance in Labor Relations (Ithaca, NY: Cornell University Press, 2015).

18 Christian E. Weller and Teresa Ghilarducci, “The Inef-ficiencies of Existing Retirement Savings Incentives”(Washington: Center for American Progress, 2015),available at https://www.americanprogress.org/issues/economy/report/2015/10/30/124315/the-inefficien-cies-of-existing-retirement-savings-incentives/; Weller,Retirement on the Rocks.

19 The value of these savings incentives as a share of after-tax income drops to 2.6 percent for the top 1 percent ofthe income distribution. This relative decline at the topof the income distribution reflects very high incomesand some limits on savings incentives. Counting allitemized deductions, the top earners still receive alarger share of income than lower-income earners. See,for instance, Tax Policy Center, “Table T13-0099: Tax Ben-efit of All Itemized Deductions; Distribution of Federal

Tax Change by Cash Income Percentile, 2015” (2013),available at http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=3857.

20 Internal Revenue Service, “Retirement Savings Con-tributions Credit (Saver’s Credit),” available at https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Savings-Contributions-Savers-Credit (last accessed November 2015).

21 For a discussion of the relevant provisions and changesmade to the Saver’s Credit with the Pension ProtectionAct of 2006, see Patrick Purcell, “The Retirement Sav-ings Credit: A Fact Sheet” (Washington: CongressionalResearch Service, 2006), available at http://www.pensionrights.org/policy/legislation/ppa_2006/savers-credit/saverscreditreport.pdf .

http://crr.bc.edu/wp-content/uploads/2014/12/IB_14-20-508.pdfhttp://crr.bc.edu/wp-content/uploads/2014/12/IB_14-20-508.pdfhttps://www.americanprogress.org/issues/economy/report/2014/08/06/95222/keep-calm-and-muddle-through/https://www.americanprogress.org/issues/economy/report/2014/08/06/95222/keep-calm-and-muddle-through/https://www.americanprogress.org/issues/economy/report/2014/08/06/95222/keep-calm-and-muddle-through/https://www.americanprogress.org/issues/economy/report/2014/08/06/95222/keep-calm-and-muddle-through/http://www.abtassociates.com/reports/ES-Final_Eval_Rpt_8-19-04.pdfhttp://www.abtassociates.com/reports/ES-Final_Eval_Rpt_8-19-04.pdfhttps://www.cbo.gov/publication/43768http://www.economicpolicyresearch.org/images/docs/retirement_security_background/Retirement_Savings_Tax_Expenditures.pdfhttp://www.economicpolicyresearch.org/images/docs/retirement_security_background/Retirement_Savings_Tax_Expenditures.pdfhttp://www.economicpolicyresearch.org/images/docs/retirement_security_background/Retirement_Savings_Tax_Expenditures.pdfhttps://www.americanprogress.org/issues/economy/report/2015/10/30/124315/the-inefficiencies-of-existing-retirement-savings-incentives/https://www.americanprogress.org/issues/economy/report/2015/10/30/124315/the-inefficiencies-of-existing-retirement-savings-incentives/https://www.americanprogress.org/issues/economy/report/2015/10/30/124315/the-inefficiencies-of-existing-retirement-savings-incentives/http://www.irs.gov/pub/irs-pdf/i1040tt.pdfhttp://www.irs.gov/pub/irs-pdf/i1040tt.pdfhttp://www.brookings.edu/views/papers/20050310orszag.pdfhttp://www.brookings.edu/views/papers/20050310orszag.pdfhttps://www.americanprogress.org/issues/economy/report/2015/10/30/124315/the-inefficiencies-of-existing-retirement-savings-incentives/https://www.americanprogress.org/issues/economy/report/2015/10/30/124315/the-inefficiencies-of-existing-retirement-savings-incentives/https://www.americanprogress.org/issues/economy/report/2015/10/30/124315/the-inefficiencies-of-existing-retirement-savings-incentives/http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=3857http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=3857https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Savings-Contributions-Savers-Credithttps://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Savings-Contributions-Savers-Credithttps://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Savings-Contributions-Savers-Credithttps://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Savings-Contributions-Savers-Credithttp://www.pensionrights.org/policy/legislation/ppa_2006/saverscredit/saverscreditreport.pdfhttp://www.pensionrights.org/policy/legislation/ppa_2006/saverscredit/saverscreditreport.pdfhttp://www.pensionrights.org/policy/legislation/ppa_2006/saverscredit/saverscreditreport.pdfhttp://www.pensionrights.org/policy/legislation/ppa_2006/saverscredit/saverscreditreport.pdfhttp://www.pensionrights.org/policy/legislation/ppa_2006/saverscredit/saverscreditreport.pdfhttp://www.pensionrights.org/policy/legislation/ppa_2006/saverscredit/saverscreditreport.pdfhttps://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Savings-Contributions-Savers-Credithttps://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Savings-Contributions-Savers-Credithttps://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Savings-Contributions-Savers-Credithttps://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Savings-Contributions-Savers-Credithttp://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=3857http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=3857https://www.americanprogress.org/issues/economy/report/2015/10/30/124315/the-inefficiencies-of-existing-retirement-savings-incentives/https://www.americanprogress.org/issues/economy/report/2015/10/30/124315/the-inefficiencies-of-existing-retirement-savings-incentives/https://www.americanprogress.org/issues/economy/report/2015/10/30/124315/the-inefficiencies-of-existing-retirement-savings-incentives/http://www.brookings.edu/views/papers/20050310orszag.pdfhttp://www.brookings.edu/views/papers/20050310orszag.pdfhttp://www.irs.gov/pub/irs-pdf/i1040tt.pdfhttp://www.irs.gov/pub/irs-pdf/i1040tt.pdfhttps://www.americanprogress.org/issues/economy/report/2015/10/30/124315/the-inefficiencies-of-existing-retirement-savings-incentives/https://www.americanprogress.org/issues/economy/report/2015/10/30/124315/the-inefficiencies-of-existing-retirement-savings-incentives/https://www.americanprogress.org/issues/economy/report/2015/10/30/124315/the-inefficiencies-of-existing-retirement-savings-incentives/http://www.economicpolicyresearch.org/images/docs/retirement_security_background/Retirement_Savings_Tax_Expenditures.pdfhttp://www.economicpolicyresearch.org/images/docs/retirement_security_background/Retirement_Savings_Tax_Expenditures.pdfhttp://www.economicpolicyresearch.org/images/docs/retirement_security_background/Retirement_Savings_Tax_Expenditures.pdfhttps://www.cbo.gov/publication/43768http://www.abtassociates.com/reports/ES-Final_Eval_Rpt_8-19-04.pdfhttp://www.abtassociates.com/reports/ES-Final_Eval_Rpt_8-19-04.pdfhttps://www.americanprogress.org/issues/economy/report/2014/08/06/95222/keep-calm-and-muddle-through/https://www.americanprogress.org/issues/economy/report/2014/08/06/95222/keep-calm-and-muddle-through/https://www.americanprogress.org/issues/economy/report/2014/08/06/95222/keep-calm-and-muddle-through/https://www.americanprogress.org/issues/economy/report/2014/08/06/95222/keep-calm-and-muddle-through/http://crr.bc.edu/wp-content/uploads/2014/12/IB_14-20-508.pdfhttp://crr.bc.edu/wp-content/uploads/2014/12/IB_14-20-508.pdf


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22 Caitlin White, “The Saver’s Credit: Don’t Miss this TaxBreak,” Transamerica, February 6, 2015, available athttp://blog.transamerica.com/savers-credit-dont-miss-tax-break#.Vdnr2_lViko.

23 Only 30 percent of those eligible for the credit madea contribution, and of those who made a qualifyingcontribution, only 60 percent claimed the credit in2002. That is, less than 20 percent of eligible tax payersreceived the credit in the first year after its inception.See Lisa Southword and John Gist, “The Saver’s Credit:What Does It Do for Saving?” (Washington: AARP Public

Policy Institute, 2008), available at http://assets.aarp.org/rgcenter/econ/i1_credit.pdf.

24 Esther Duflo and others, “Savings Incentives for Low-and Moderate-Income Families in the United States:Why Is the Saver’s Credit Not More Effective?”, Journalof the European Economic Association 5 (2–3) (2007):647–661, available at http://eml.berkeley.edu/~saez/duflo-gale-liebman-orszag-saezJEEA07savercredit.pdf .

25 For one possible way to pay for the small additionalcosts of making the Saver’s Credit refundable, seeCamille Busette and Jordan Eizenga, “A Small Changeto the Saver’s Credit Can Go a Long Way” (Washing-ton: Center for American Progress, 2012), available athttps://www.americanprogress.org/wp-content/up-loads/issues/2012/01/pdf/small_change_savers_credit.pdf. For some estimates of making the Saver’s Creditrefundable, see Government Accountability Office, “Pri-

vate Pensions – Some Key Features Lead to an UnevenDistribution of Benefits,” GAO 11-333, Report to Con-gressional Requesters, March 2011, available at https://books.google.com/books?id=O3C10MRxDxwC&pg=PA29&lpg=PA29&dq=GAO+saver%27s+credit&source=bl&ots=W786NgcNUX&sig=flcxpexO0xLGDroP-11qHp3mT2A&hl=en&sa=X&ved=0CDQQ6AEwA2oVChMIr-Jm55sm_xwIVAgs-Ch0dsglb#v=onepage&q=GAO%20saver’s%20credit&f=false.

26 See U.S. Senate Committee on Finance, “The Savingsand Investment Bipartisan Tax Working Group Report ”(2015), available at http://www.finance.senate.gov/download/?id=B4AEDDC8-9E94-4380-9AF4-9388953FB347.

27 Weller, Retirement on the Rocks.

28 See Joe Valenti and Christian E. Weller, “Creating

Economic Security” (Washington: Center for AmericanProgress, 2013).

29 Pamela Perun, “Matching Private Saving with FederalDollars: USA Accounts and Oth er Subsidies for Saving”(Washington: Urban Institute, 1999), available at http://www.urban.org/research/publication/matching-private-saving-federal-dollars.

30 Ibid.

31 Executive Office of the President, Budget of the UnitedStates: Fiscal Year 2011 (2010), p. 102.

32 Financial Security Credit Act of 2013, H.R. 2917, 113Cong. 1 sess. (Government Printing Office, 2013), avail-able at https://www.govtrack.us/congress/bills/113/hr2917/text.

33 Pamela Perun and Eugene Steuerle, “Why Not a ‘SuperSimple’ Saving Plan for the United States?” (Washing-ton: Urban Institute, 2008), available at http://www.urban.org/sites/default/files/alfresco/publication-pdfs/411676-Why-Not-a-quot-Super-Simple-quot-Saving-Plan-for-the-United-States-.PDF.

34 President’s Advisory Panel on Federal Tax Reform, “Sim-ple, Fair, and Pro-Growth: Proposals to Fix America’s TaxSystem” (2005), available at http://govinfo.library.unt.edu/taxreformpanel/final-report/index.html.

35 Christian E. Weller and Sam Ungar, “Overhauling FederalSavings Incentives,” Tax Notes, March 3, 2014.

36 John Friedman, “Building on What Works: A Proposal toModernize Retirement Savings.” Discussion Paper 2015-15 (The Hamilton Project, 2015), available at http://www.hamiltonproject.org/assets/files/friedman_pro-

posal_modernize_retirement_savings.pdf .

37 Pension Protection Act of 2006, Public Law 109-280,109th Cong., 2nd sess. (August 17, 2006).

38 Jack VanDerhei, “The Impact of Automatic Enrollmentin 401(k) Plans on Future Retirement Accumulations: ASimulation Study Based on Plan Design Modificationsof Large Plan Sponsors” (Washington: Employee Ben-efits Research Institute, 2010), available at http://www.ebri.org/pdf/briefspdf/EBRI_IB_04-2010_No341_Auto-Enroll1.pdf.

39 It is important to note two important caveats. First, theresults are based on data from the largest employersand thus cannot be readily extrapolated to smalleremployers. Second, the estimates rest on the assump-tion that a young worker, once covered by a 401(k)plan, will continuously be covered by a 401(k) plan until

retirement. These assumptions likely lead to substantialoverstatements of the effect of automatic enrollmenton typical low-wage workers. They simply show howwell low-wage workers could do under almost idealcircumstances, working for a large employer with a401(k) plan.

40 Craig Copeland, “Employment-Based Plan Participation:Geographic Differences and Trends, 2013” ( Washington:Employee Benefits Research Institute, 2014), availableat http://www.ebri.org/pdf/briefspdf/EBRI_IB_405_Oct14.RetPart.pdf .

41 People age 50 and older can contribute an additional$6,000 in 2 015. See Fidelity I nvestments, “Contributionlimits for retirement accounts,” available at https://401k.fidelity.com/public/content/401k/Home/VPContribu-tionLimits (last accessed on August 2015).

42 In 2012, only 17 percent of people with a 401(k) planwere even offered a lifetime annuity, down from33 percent in 2000. See Katherine G. Abraham andBenjamin H. Harris, “Better Financial Security in Retire-ment? Realizing the Promise of Longevity Annuities”(Washington: The Brookings Institution, 2014), availableat http://www.brookings.edu/~/media/research/files/papers/2014/11/06-retirement-longevity-annuities-abraham-harris/06_retirement_longevity_annui-ties_abraham_harris.pdf .

43 See Andrew Lundeen, “Proposed Changes in PresidentObama’s Fiscal Year 2016 Budget,” Tax Foundation,February 11, 2015, available at http://taxfoundation.org/blog/proposed-tax-changes-president-obama-s-fiscal-year-2016-budget.

44 The proposal also limited the total value of tax deduc-tions to 25 percent of income. See Jim Nunns, Amanda

Eng, and Lydia Austin, “Description and Analysis of theCamp Tax Reform Plan” ( Washington: Tax Policy Center,2014), available at http://www.taxpolicycenter.org/UploadedPDF/413176-Camp-Plan-Description-and-Analysis.pdf.

http://assets.aarp.org/rgcenter/econ/i1_credit.pdfhttp://assets.aarp.org/rgcenter/econ/i1_credit.pdfhttp://eml.berkeley.edu/~saez/duflo-gale-liebman-orszag-saezJEEA07savercredit.pdfhttp://eml.berkeley.edu/~saez/duflo-gale-liebman-orszag-saezJEEA07savercredit.pdfhttps://www.americanprogress.org/wp-content/uploads/issues/2012/01/pdf/small_change_savers_credit.pdfhttps://www.americanprogress.org/wp-content/uploads/issues/2012/01/pdf/small_change_savers_credit.pdfhttps://www.americanprogress.org/wp-content/uploads/issues/2012/01/pdf/small_change_savers_credit.pdfhttp://www.finance.senate.gov/download/?id=B4AEDDC8-9E94-4380-9AF4-9388953FB347http://www.finance.senate.gov/download/?id=B4AEDDC8-9E94-4380-9AF4-9388953FB347http://www.finance.senate.gov/download/?id=B4AEDDC8-9E94-4380-9AF4-9388953FB347http://www.urban.org/research/publication/matching-private-saving-federal-dollarshttp://www.urban.org/research/publication/matching-private-saving-federal-dollarshttp://www.urban.org/research/publication/matching-private-saving-federal-dollarshttp://www.urban.org/sites/default/files/alfresco/publication-pdfs/411676-Why-Not-a-quot-Super-Simple-quot-Saving-Plan-for-the-United-States-.PDFhttp://www.urban.org/sites/default/files/alfresco/publication-pdfs/411676-Why-Not-a-quot-Super-Simple-quot-Saving-Plan-for-the-United-States-.PDFhttp://www.urban.org/sites/default/files/alfresco/publication-pdfs/411676-Why-Not-a-quot-Super-Simple-quot-Saving-Plan-for-the-United-States-.PDFhttp://www.urban.org/sites/default/files/alfresco/publication-pdfs/411676-Why-Not-a-quot-Super-Simple-quot-Saving-Plan-for-the-United-States-.PDFhttp://govinfo.library.unt.edu/taxreformpanel/final-report/index.htmlhttp://govinfo.library.unt.edu/taxreformpanel/final-report/index.htmlhttp://www.hamiltonproject.org/assets/files/friedman_proposal_modernize_retirement_savings.pdfhttp://www.hamiltonproject.org/assets/files/friedman_proposal_modernize_retirement_savings.pdfhttp://www.hamiltonproject.org/assets/files/friedman_proposal_modernize_retirement_savings.pdfhttp://www.ebri.org/pdf/briefspdf/EBRI_IB_04-2010_No341_Auto-Enroll1.pdfhttp://www.ebri.org/pdf/briefspdf/EBRI_IB_04-2010_No341_Auto-Enroll1.pdfhttp://www.ebri.org/pdf/briefspdf/EBRI_IB_04-2010_No341_Auto-Enroll1.pdfhttp://www.ebri.org/pdf/briefspdf/EBRI_IB_405_Oct14.RetPart.pdfhttp://www.ebri.org/pdf/briefspdf/EBRI_IB_405_Oct14.RetPart.pdfhttps://401k.fidelity.com/public/content/401k/Home/VPContributionLimitshttps://401k.fidelity.com/public/content/401k/Home/VPContributionLimitshttps://401k.fidelity.com/public/content/401k/Home/VPContributionLimitshttp://www.brookings.edu/~/media/research/files/papers/2014/11/06-retirement-longevity-annuities-abraham-harris/06_retirement_longevity_annuities_abraham_harris.pdfhttp://www.brookings.edu/~/media/research/files/papers/2014/11/06-retirement-longevity-annuities-abraham-harris/06_retirement_longevity_annuities_abraham_harris.pdfhttp://www.brookings.edu/~/media/research/files/papers/2014/11/06-retirement-longevity-annuities-abraham-harris/06_retirement_longevity_annuities_abraham_harris.pdfhttp://www.brookings.edu/~/media/research/files/papers/2014/11/06-retirement-longevity-annuities-abraham-harris/06_retirement_longevity_annuities_abraham_harris.pdfhttp://taxfoundation.org/blog/proposed-tax-changes-president-obama-s-fiscal-year-2016-budgethttp://taxfoundation.org/blog/proposed-tax-changes-president-obama-s-fiscal-year-2016-budgethttp://taxfoundation.org/blog/proposed-tax-changes-president-obama-s-fiscal-year-2016-budgethttp://www.taxpolicycenter.org/UploadedPDF/413176-Camp-Plan-Description-and-Analysis.pdfhttp://www.taxpolicycenter.org/UploadedPDF/413176-Camp-Plan-Description-and-Analysis.pdfhttp://www.taxpolicycenter.org/UploadedPDF/413176-Camp-Plan-Description-and-Analysis.pdfhttp://www.taxpolicycenter.org/UploadedPDF/413176-Camp-Plan-Description-and-Analysis.pdfhttp://www.taxpolicycenter.org/UploadedPDF/413176-Camp-Plan-Description-and-Analysis.pdfhttp://www.taxpolicycenter.org/UploadedPDF/413176-Camp-Plan-Description-and-Analysis.pdfhttp://taxfoundation.org/blog/proposed-tax-changes-president-obama-s-fiscal-year-2016-budgethttp://taxfoundation.org/blog/proposed-tax-changes-president-obama-s-fiscal-year-2016-budgethttp://taxfoundation.org/blog/proposed-tax-changes-president-obama-s-fiscal-year-2016-budgethttp://www.brookings.edu/~/media/research/files/papers/2014/11/06-retirement-longevity-annuities-abraham-harris/06_retirement_longevity_annuities_abraham_harris.pdfhttp://www.brookings.edu/~/media/research/files/papers/2014/11/06-retirement-longevity-annuities-abraham-harris/06_retirement_longevity_annuities_abraham_harris.pdfhttp://www.brookings.edu/~/media/research/files/papers/2014/11/06-retirement-longevity-annuities-abraham-harris/06_retirement_longevity_annuities_abraham_harris.pdfhttp://www.brookings.edu/~/media/research/files/papers/2014/11/06-retirement-longevity-annuities-abraham-harris/06_retirement_longevity_annuities_abraham_harris.pdfhttps://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45 See Lundeen, “Proposed Changes in President Obama’sFiscal Year 2016 Budget.”

46 For a range of specific proposals, see Ghilarducci, WhenI’m Sixty-Four ; Rowland Davis and David Madland,“American Retirement Savings Could Be Much Better”(Washington: Center for American Progress, 2013);Christian E. Weller, “PURE: A Proposal for More Retire-ment Income Security,” Journal of Aging and SocialPolicy 19 (1) (2007), 21–38. These proposals all varysomewhat in who is covered, whether coverage ismandatory, how much employers and employees have

to contribute, and how people receive their benefits.Moreover, Christian Weller and Amy Helburn offer adiscussion on a broader range of proposals for state-sponsored retirement plans. See Christian Weller andAmy Helburn “States to the Rescue: Policy Options forState Government to Promote Private Sector Retire-ment Savings,” Journal of Pension Benefits 18 (1) (2010):37–47. Furthermore, David Morse offers a discussion ofthe legal issues involved in developing state-sponsoredsavings options. See David E. Morse, “State Initiativesto Expand the Availability and Effectiveness of PrivateSector Retirement Plans” (Washington: GeorgetownUniversity Center for Retirement Initiatives, 2014). TheGeorgetown University Center for Retirement Initia-tives also presents a map with summaries of currentstate-sponsored initiatives. See Georgetown UniversityCenter for Retirement Initiatives, “Look to the Statesfor Innovation,” available at http://cri.georgetown.edu/states/ (last accessed May 2015). Finally, the AARP

Public Policy Institute has established a states resourcepage that highlights state initiatives and discussessome of the policy and legal issues involved in estab-lishing state-sponsored retirement savings options. SeeAARP Public Policy In stitute, “State Retirement SavingsResource Center,” available at http://www.aarp.org/ppi/state-retirement-plans/ (last accessed May 2015).

47 Morse, “State Initiatives to Expand the Availability andEffectiveness of Private Sector Retirement Plans”; Rob-ert J. Toth Jr., “Retirement Saving Policy: The Impact ofERISA on State-Sponsored Plan Designs” (Washington:AARP Public Policy Institute, 2014); Weller, “PURE: AProposal for More Retirement Income Security.” The fol-lowing proposals envision a 5 percent contribution—split between employees and employers, or 2.5 percenteach: Teresa Ghilarducci, “Guaranteed RetirementAccounts: Toward Retirement Income Security.” BriefingPaper 204 (Economic Policy Institute, 2007); Ghilar-ducci, When I’m Sixty-Four . For a proposal that envisions

starting at a 3 percent contribution and escalating toaround 12 percent, see Davis and Madland, “AmericanRetirement Savings Could Be Much Better.”

48 U.S. Department of the Treasury, myRA: A Simple, Safe, Affordable Retirement Savings Account (2014), availableat http://www.treasury.gov/connect/blog/Documents/FINAL%20myRA%20Fact%20Sheet.pdf .

49 Pension Rights Center, “State-based retirement plansfor the private sector,” available at http://www.pension-rights.org/issues/legislation/state-based-retirement-plans-private-sector (last accessed January 2014); AletaSprague, “The California Secure Choice RetirementSavings Program” (Washington: New America Founda-tion, 2013).

http://cri.georgetown.edu/states/http://cri.georgetown.edu/states/http://www.aarp.org/ppi/state-retirement-plans/http://www.aarp.org/ppi/state-retirement-plans/http://www.treasury.gov/connect/blog/Documents/FINAL%20myRA%20Fact%20Sheet.pdfhttp://www.treasury.gov/connect/blog/Documents/FINAL%20myRA%20Fact%20Sheet.pdfhttp://www.pensionrights.org/issues/legislation/state-based-retirement-plans-private-sectorhttp://www.pensionrights.org/issues/legislation/state-based-retirement-plans-private-sectorhttp://www.pensionrights.org/issues/legislation/state-based-retirement-plans-private-sectorhttp://www.pensionrights.org/issues/legislation/state-based-retirement-plans-private-sectorhttp://www.pensionrights.org/issues/legislation/state-based-retirement-plans-private-sectorhttp://www.pensionrights.org/issues/legislation/state-based-retirement-plans-private-sectorhttp://www.treasury.gov/connect/blog/Documents/FINAL%20myRA%20Fact%20Sheet.pdfhttp://www.treasury.gov/connect/blog/Documents/FINAL%20myRA%20Fact%20Sheet.pdfhttp://www.aarp.org/ppi/state-retirement-plans/http://www.aarp.org/ppi/state-retirement-plans/http://cri.georgetown.edu/states/http://cri.georgetown.edu/states/


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