Should the federal government mandate retirement savings for all workers like Social Security? A recent NY Times article highlights a proposal by Tony James, President of Blackstone, a huge private equity fund, and New School Professor Teresa Ghiladucci, for the federal government to sponsor a mandated Guaranteed Retirement Account.
Like with healthcare, there’s momentum building for all companies of a certain size to offer workplace retirement accounts where employees are 17 times more likely to save than on their own. Ghilarducci has been a longtime critic of defined contribution plans like 401(k)s which she claims provide inadequate savings and retirement income while not covering enough workers. Indeed, the federal government has made a small step in that direction with President Obama’s myRA plan as well as offering state initiatives exemption from ERISA. Other countries like Australia, New Zealand and the UK have mandated workplace retirement plans.
Experts suggest that people should save enough to replace 70-80% of their income at retirement with Social Security replacing a projected 39% leaving a sizable gap especially with average account 401(k) balances hovering below $100,000. But Social Security will replace a higher percentage of lower income workers’ income while older, higher income workers have a much higher account balance.
[graphiq id=”dHXrVXroNkV” title=”Average Social Security Payout per Month” width=”600″ height=”511″ url=”https://w.graphiq.com/w/dHXrVXroNkV” link=”https://time-series.findthedata.com/l/56643/Average-Social-Security-Payout-per-Month” link_text=”Average Social Security Payout per Month | FindTheData”]
No doubt that there is still a gap in savings and coverage but the question is whether private employers should be required to offer retirement plans and, if so, whether the government should take the lead. Based on how state and local entities have managed retirement plans for their own workers which are significantly underfunded, it’s hard to make the case for them to get involved with private plans. And shouldn’t employers have a choice on the type of retirement plan based on the needs of the company and the demographics of their employees?
