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Home Publications Blogs Beat the Press Washington Post Discovers Efforts to Supplement Retirement Savings

Washington Post Discovers Efforts to Supplement Retirement Savings

Wednesday, 21 August 2013 07:02

The Washington Post may not be the best place to get breaking news, but that doesn't mean they never get the news. Today it ran a piece discussing a proposal by the Center for American Progress (CAP) to create state-run savings systems that workers could contribute to on an opt-out basis. In other words, they would be contributing to the system unless they explicitly asked not to contribute. The plan is intended to supplement Social Security, recognizing that the vast majority of workers have been able to accumulate little or nothing in 401(k) type plans. It would also provide a guaranteed benefit based on the contribution, similar to a cash balance pension plan.

While it's good to see the Post take note of the CAP proposal, these types of plans are not exactly new. The Economic Opportunity Institute in Washington State has been working on a similar plan for almost 15 years. They got a bill through the legislature for a study of such a system just before the economic downturn in 2007. The budget crisis from the downturn made the state reluctant to spend even the seed money that would be needed to get a plan in place.

There were also efforts undertaken in Maryland, Connecticut, and California (in 2007), that came close to being approved by legislatures and put into law. (CEPR assisted several of these efforts.) Anyhow, it would be helpful to include some of this background.



Comments (4)Add Comment
written by skeptonomist, August 21, 2013 9:36
Is there really a shortage of capital now, so that workers' savings need to be increased? Are prices of stocks too low? Is it a priority to take money from workers and place it at the disposal of Wall Street?

Or on the contrary, do workers have too little to spend, restricting demand? What is actually needed now is redistribution, taking money from capitalists who are not using it (except to inflate the stock market) and giving it to those who are most likely to spend it. One way to do this is increase SS benefit levels, paying for it by raising the cap and extending taxation to non-wage income. This won't happen in the near future, but it's sad to see "progressive" organizations promoting the welfare of Wall Street with default 401k plans.
written by tt, August 21, 2013 9:50
California did pass a bill that created a new state savings program in 2012. For some reason this has really fallen under the radar. Here is the link:http://www.scpr.org/blogs/economy/2012/09/28/10232/california-tackles-looming-retirement-crisis-will-/

This is a large leap in public policy that is finally moving towards addressing retirement security.
the article discusses the CA plan
written by Dean, August 21, 2013 11:41
the CA plan is in a study phase as was the Washington State plan 6 years ago.
why restrict choices?
written by pete, August 21, 2013 11:49
Essentially this is an investment with a guarantee, so a put option on top of an investment. Thus there is a cost to the put option. Since people who have invested in 401s for the last 30 years have done pretty well, this would have been a bad plan for them, paying for the put option. The exception of course is folks who retired in 2001 or 2007. Even there of course if they let the money ride they would have been ok. The opt out is the design I think of Bernartzi who felt young folks were not saving enough. This gets to intertemporal consumption, a tricky thing to consider. Essentially, 20 year olds with little income save little because they are consuming a lot, duh. As your income rises and you age you start saving more. Forcing (i.e., making folks opt out) kids to save denies them consumption at that age. This is not necessarily optimal in terms of utility, but maybe in terms of dollars.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.