Conservative scholar and retirement-crisis contrarian Andrew Biggs took to the pages of The Washington Post to decry government-sponsored defined contribution plans.
Aside from making it easier to purge lower income individuals from state assistance they may need, like SNAP and welfare, workers enrolled in a similar program through the Department of Defense engaged in destructive financial behavior, amassing more debt as a result of lower paychecks due to the subtraction of the deferred savings amount.
“[B]ureaucratic good intentions sometimes address problems that aren’t problems or end up doing more harm than good,” Biggs, a resident scholar at the American Enterprise Institute and a former principal deputy commissioner of the Social Security Administration, writes in his op-ed.
“In the case of auto-IRAs for low-income workers, states are likely doing both: These workers are in better shape for retirement than misleading news coverage suggests, and auto-IRAs could saddle them with higher debt while disqualifying them from means-tested government health and welfare programs—thus saving the states a fortune.”
It’s not even clear that low-income Americans need to dramatically boost their savings, he argues.
“The Congressional Budget Office finds that Social Security provides low-income retirees with benefits equal to roughly 90 percent of their inflation-adjusted career-average earnings. The same 2017 Census Bureau research shows that from 1990 to 2012, incomes for low-income retirees rose 31 percent and poverty among retirees dropped from 9.7 percent to 6.7 percent.”
Referring to state-sponsored IRAs in particular, he says that “Clearly, this idea hasn’t been fully thought through. What can be done?”
He offers two suggestions:
First, state auto-IRAs should not apply to truly low-income workers, with whom there is the most potential for harm
Second, the best way to protect the poor in retirement would be through Social Security reform.
“Granted, the overhaul that Social Security urgently requires is still a distant dream, given the shortsighted, risk-averse lawmakers now in Congress,” he concludes. “But one day the need to save Social Security from fiscal disaster will become an emergency that even Washington can’t ignore. That will present an opportunity to gradually reduce benefits for middle- and upper-income retirees and restore the program’s original goal of saving Americans from an impoverished old age.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
