For Immediate Release: February 3, 2011
Contact: Alan Barber, 571-306-2526
Washington D.C. - While the Social Security system provides a solid foundation that keeps the vast majority of retirees out of poverty, it is insufficient to provide a comfortable retirement income. The economic downturn has future darkened the prospects for retirement security for many near- and future retirees. The Center for Economic and Policy Research has released a report proposing a system of supplemental retirement accounts that would help address this problem in the future.
The report, “A Voluntary Default Savings Plan: An Effective Supplement to Social Security,” outlines a voluntary system of supplemental retirement accounts involving default contributions of 3 percent of wages, up to $1,000 a year and compares it with standards of retirement income and other proposed systems.
The CEPR supplemental saving plan is a mix of a defined contribution and defined benefit plan comparable to a cash-balance private pension plan with an option for workers to opt-out. To make the plan more affordable to lower-income workers, there would be a savings subsidy, in addition to a match, which would phase out to zero for those making over $40,000 per year.
The government would administer the accounts to minimize administrative costs, although the investment of the funds could be managed privately, as with the federal employees Thrift Savings Plan. The accounts would offer a guaranteed 3.0 percent rate of return with a default payback in the form of an annuity. The Tax Policy Center of the Brooking Institution and Urban Institute modeled the CEPR savings plan and demonstrated that it would lead to a substantial increase in retirement savings for workers in the bottom two quintiles of 15-20 percent.