| The Other 71 million |
| By David John |
Published
12/5/2007
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Retirement
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David John
David John has been involved in Washington’s top policy debates for more than 25 years and he continues that career as Heritage’s lead analyst on issues relating to Social Security reform.
Mr. John is one of five experts who "exert more influence" on the Social Security debate than anyone else in Washington – and he is The Heritage Foundation's lead analyst on issues relating to pensions, financial institutions, asset building, and Social Security reform.
In 2006, John lived up to this title, given to him by Congressional Quarterly, by working with Brookings Institution scholar J. Mark Iwry to come up with a "third way" to promote retirement self-reliance: the Automatic IRA.
View all articles by David John
The Other 71 Million p2.
Employees would decide whether to contribute, and employers, if they wished, could make participating in the IRA automatic, so that employees would have an IRA and make regular payroll contributions to it unless they opted out. The power of automatic enrollment to increase participation and improve investments in 401(k) plans has been proven and is winning broad support in industry and government.
Under automatic enrollment, employees can choose whether to save, but those who can’t decide or don’t respond are automatically enrolled using a pre-set contribution rate and investment. The power of regular payroll deposit, especially with automatic enrollment, is impressive. Today, fewer than one in 10 eligible individuals contribute to an IRA, while about seven in 10 contribute to a 401(k); and more than nine in 10 contribute to a 401(k) when automatic enrollment is used. And participation increases most dramatically among lower-income and minority workers.
Companies that sponsor a retirement plan -- and small businesses just starting up or employing up to 10 workers -- would not be required to offer payroll deposit saving, but every firm that does offer it would receive a temporary tax credit to cover costs. The business itself would not make any contributions or investment decisions and would be protected from potential fiduciary liability. It could choose to send employees’ contributions to one or more IRAs currently in the market or to a low-cost group IRA with a simple but sound set of investments similar to the successful 401(k)-type plan that covers Members of Congress and other federal employees. Our proposal also outlines similar strategies to extend more effective saving opportunities to self-employed Americans.
Unless we save more, millions of us soon will retire without adequate resources. This will place an increasing strain on already overburdened federal, state and family budgets. Our proposal to make saving more automatic and universal -- unlike last year’s fractious debate over social security reform -- has been endorsed by AARP and is beginning to attract further support from across the political spectrum. Congress can act now to transcend partisan differences and make it easier for 71 million American workers to save for a more secure retirement. J. Mark Iwry is a Senior Adviser to The Retirement Security Project, a Nonresident Senior Fellow at the Brookings Institution and Research Professor at Georgetown University.
David John is a senior research fellow for Social Security at the Heritage Foundation.
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