Bernard L. and Irene Schwartz Chair of Economic Policy Analysis
The New School for Social Research
American workers lack pension security, beyond Social Security, because individual commercial retirement accounts are tied to the volatility of finance markets, are inadequately funded, have poor net-of-fees returns, and do not pay a guaranteed rate of return for the rest of a retiree’s life. Also, employers have conflict of interests between their needs and their workers’ needs when choosing 401(k) investment vehicles. Pension coverage is stuck at half of the workforce
I propose a short term and long term solution to inadequate pensions. Short term, workers should be able to swap out their 401(k) assets – if they choose — (valued mid August) for special issue government bonds paying a guaranteed 3% plus inflation rate of return. Long term, everyone should be able to be in a national “cash-balance” fund where the contributions are a steady percent of pay – at least 5% — and the returns are guaranteed (3% plus inflation.). Workers’ contributions should be subsidized by a government tax credit of $600 (adjusted for inflation). The short term swap would be voluntary and the participation in the Guaranteed Retirement Accounts would be mandatory if there was no other pension plan available. One way to pay for the $600 subsidy is to turn the tax deduction for 401(k)s into a tax credit.