Not enough Americans are saving for retirement and it's unclear if a new minimum pension law proposed by a prominent think tank to address this crisis would be effective. The law, recommended by the centrist Third Way group, would require that employers contribute a minimum of 50 cents per hour worked, for every worker, into a retirement plan.
The public sector and most private sector companies offer retirement plans, but about 30 percent of non-retired Americans have no money saved for retirement, the Federal Reserve reported last month. Most workers who aren’t saving for retirement have lower incomes and two-thirds of them work for companies that don’t offer a retirement savings plan, according to Boston College’s Center for Retirement Research. Many of those who are saving aren’t saving enough, so though Americans pay $140 billion each year subsidizing retirement accounts, millions are nearing retirement with little or nothing saved.
“A minimum pension sounds like a minimum wage, and it is,” David Brown and Kimberly Pucher, the authors of Third Way’s report, wrote. “The minimum pension requires that, in addition to wages, employees must receive at least 50 cents an hour in retirement contributions.”
That’s a minimum contribution of $1,000 a year to full-time, full-year workers, to be indexed for inflation.
Brown and Pucher would like companies to increase wages for employees so the pension wouldn’t be subtracting from their current pay, but they admit the “transition does pose a challenge to businesses in the near term.” They propose the government should help businesses make that transition with a temporary tax credit.
“It’s a step in the right direction,” said Matthew Rutledge, economist at the Center for Retirement Research. “But it seems to be strengthening the role of the employer in retirement planning. You can’t have a pension if you don’t have an employer.”
Rutledge has researched the challenges lower-income Americans have in planning for retirement and said expanding Social Security is the best option to encourage all Americans to save because it’s simple and allows those who change jobs frequently and lack stable relationships with employers to save steadily.
Greg McBride, chief financial analyst for Bankrate.com, agrees that too many Americans aren’t saving enough for retirement, but he warns that mandating retirement contributions would burden businesses and further slow the already anemic wage growth since the recession.
“Anything that gets people to either save more or have access to a bigger nest egg for retirement is a good thing,” he said. “But the reality is having a mandate that employers have to contribute a certain amount to retirement savings just increases the likelihood that this goes the way that healthcare has gone, that it just becomes another impediment to job creation.”
In February, President Obama announced a program called MyRA that would allow Americans who don’t have access to a retirement plan through an employer to deposit portions of their pay into an account. The program has yet to gain much traction at the federal level.