At a Senate Finance Committee hearing on Thursday experts on retirement policy sharply disagreed over the best course to improve Americans’ ability to retire with some financial security. Proposals ranged from substantial changes in the current system to adjustments that would not alter it drastically.
The hearing, titled Tax Reform Options: Promoting Retirement Security, drew testimony from four witnesses: Dr. Jack VanDerhe, research director at the Employee Benefit Research Institute; Dr. William G. Gale, senior fellow at the Brookings Institution; Judy A. Miller, chief of actuarial issues and director of retirement policy at the American Society of Pension Professionals and Actuaries; and Karen Friedman, executive vice president and policy director at the Pension Rights Center.
VanDerhe cited statistics that indicated nearly half of baby boomers and Gen Xers were at risk of not having sufficient retirement income to cover their basic living expenses and uninsured health care costs. The risk level was tied to whether the household participated in an employer-sponsored retirement plan, but such participation was no guarantee of adequate income.
Miller said that no drastic action should be taken on a system that was “incredibly successful at getting moderate income workers to save,” and instead said that the 401(k) system needed “a tune-up, not an overhaul.”
She also cautioned about changing tax incentives to get employers to sponsor a retirement plan, warning that if incentives were lowered or done away with many employers would choose simply not to offer one. She also said that multiple employer plans might provide an answer for some small businesses which were not well enough off to sponsor their own plans.
Gale testified that “[t]he current system … provides the smallest immediate benefit to taxpayers who face a zero or low marginal income tax rate, and who are typically characterized by low- or middle-income. These families are also typically most in need of increasing savings to meet basic retirement needs.”
Friedman said that 401(k) plans did not provide as well for families as defined benefit plans once did, and that a return to such plans should be considered.
There was also discussion of the viability of capping contribution levels, raising existing limits, and the feasibility of depositing a tax benefit into an employee’s retirement account instead of returning it to him as a check to be spent; that last would thus directly and automatically increase retirement savings.