Teresa Ghilarducci, professor of economics at the New School for Social Research and outspoken critic of 401(k)s, joined Blackstone president Hamilton James in the pages of The New York Times to call for mandatory retirement saving.
Arguing that the current system, “a mix of 401(k)s and individual retirement accounts (IRAs)” is broken, Ghilarducci and James claim the plans are individually directed, voluntary and leaky.
“Just over half of workers don’t have access to a workplace retirement plan,” they write. “According to the National Institute on Retirement Security, Americans between the ages of 40 and 55 have retirement savings of $14,500, when they will need between 20 and 30 times that amount. Many people take money out before they retire. And the wealthy tend to pay lower fees and get higher subsidies for their savings.”
Their solution?
A “bolder plan,” which they are calling the guaranteed retirement account (G.R.A.).
“Under our proposal, all workers and employers will have to make regular payments into a G.R.A., which builds until retirement age, then pays out a supplemental stream of income until that person and his or her beneficiary die. In our plan, the more than 95 million workers without a pension plan would each have his or her own G.R.A. managed by an independent federal agency. Workers and employers would each contribute a mandatory minimum of 1.5 percent of the salary or contract. The current tax deduction for retirement savings would be converted to a $600 refundable tax credit to pay for the contributions of households below median income.”
Workers could not withdraw money early, they add, even for emergencies — “and they won’t like that,” but allowing for exceptions creates a “slippery slope.”
“Just as Social Security is protected from early withdrawal, retirement accounts should be used for old-age income,” they conclude. “Employers won’t like paying more. But in return, they are free from administrating and worrying about providing retirement plans if they don’t offer a 401(k) or pension. In the long run, employers would benefit because a nation of financially secure retirees would pre-empt higher corporate taxes.”