NU Online News Service, Sept. 14, 2004, 4:28 p.m. EDT
Think tanks that tend to take opposing positions on most issues have united to come up with a plan for helping American workers get better returns on their retirement savings.[@@]
The Brookings Institution, Washington, a moderately liberal think tank, and the National Center for Policy Analysis, Dallas, a conservative think tank, are asking the government to encourage employees to do a better job diversifying their 401(k) plan investments.
“People make 2 mistakes: They invest in what they know and in what is safe,” NCPA President John Goodman says in a statement about the proposal. “What they know is their company’s stock, but putting all your eggs in one basket is risky. What is safe is government bonds and money market funds, but the returns are too low.”
Peter Orszag, a Brookings senior fellow, gave a similar assessment of workers’ retirement savings strategy.
“Public policy should encourage both saving and diversification,” Orszag says.
The Brookings-NCPA reform proposal would give employers incentives to enroll employees in 401(k) plans automatically, unless the employees explicitly opt out.
The proposal also would set a voluntary minimum contribution rate, encourage employees to invest in diversified portfolios, and automatically put employees who are not sure where to invest their money in broadly diversified plans.
“These changes would not be compulsory, either for employers or employees,” the NCPA and the Brookings Institution emphasize in a summary of the proposal’s features.