Over the past 25 years, retirement reforms in the U.S. tried to encourage savings among low- and moderate-income Americans, but these policies may have disproportionately benefited wealthy and high-income earners.
In a recent research paper, “The Great American Retirement Fraud,” University of Virginia Law Professor Michael Doran argues that the retirement-reform road map undertaken by Congress, starting in 1996, has failed Americans, PlanSponsor reports.
“The retirement-reform project of the past 25 years has been and continues to be a policy scam,” Doran says in the paper. “Neither the aim nor the effect of the legislative changes has been to increase retirement security for the great majority of American workers.”
Instead of improving retirement security for low- and moderate-income workers, Doran contends that the congressional changes to retirement savings only helped employer-sponsored plans and individual retirement accounts (IRAs), which largely benefited affluent individuals with both the means and the inclination to save money toward retirement regardless of federal law providing incentives to do so.
New contribution limits and tax subsidies have been included in retirement reform measures, which were a departure from Congress’ earlier retirement policy goals that included prioritizing protecting employees from abusive practices by employers and financial services companies, along with limiting the costs of retirement savings subsidies, according to Doran.
“This is not just a question of benign neglect,” Doran says. “The enormous retirement-savings subsidies that Congress has directed to higher-income earners have diverted federal resources from other policies that would increase retirement security for lower-income and middle-income earners, whether through private savings or through improvements to Social Security. These lost opportunities have left middle-income earners scarcely better off than they were in the early 1990s. Remarkably, the retirement-account balances of lower-income earners have decreased over the past 25 years.”
Nevertheless, other market observers believe that retirement savings have still been a huge success in the U.S. as these plans helped Americans put trillions of dollars toward retirement.
“By any measure, its voluntary components—employer-sponsored plans and IRAs—are the most successful in the world, with assets greater than $37 trillion,” Peter Brady, senior economic adviser at the Investment Company Institute (ICI), told PlanSponsor. “Indeed, recent research shows U.S. retirees get as much income from these plans as they get from Social Security. The defined contribution [DC] plans that are the focus of the paper are extremely popular with workers because of the investment options they provide, as well as their flexibility and portability.”
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