WASHINGTON – At a hearing held by the Senate Committee on Finance today, the Pension Rights Center called on lawmakers to re-examine the tax incentives associated with 401(k) plans and other retirement savings plans, so that those tax breaks work more efficiently and equitably. The Center also asked the panel to consider broader measures that would ensure a secure and adequate retirement for all Americans.
Testifying on behalf of the Pension Rights Center, Executive Vice President and Policy Director Karen Friedman stated, “According to a recent Gallup poll, Americans say their top financial concern is not saving enough money for retirement – even surpassing concerns about paying for healthcare or paying the mortgage. While Congress is addressing the long-term federal deficit, there is another deficit facing the country that also needs urgent attention: the Retirement Income Deficit.”
Friedman listed short-term measures that should be considered to increase retirement savings, particularly among lower- and moderate-income workers:
Friedman also outlined fundamental problems with 401(k) plans, which have become the dominant type of retirement plan available to workers.
“Even before the stock market crash, 401(k) plans were not addressing the nation’s retirement needs. In 2007, half of all households had less than $45,000 in their accounts. For those approaching retirement, the median account balance was just about $98,000 – not nearly enough to last throughout retirement,” she said. “Congress gives preferential tax treatment because it’s hard to save for retirement…These tax incentives are meant to encourage employers to set up plans and to encourage employees to save for retirement. However, they end up disproportionately benefitting the most affluent employees, who do not need tax incentives to save.”
Citing the work of Retirement USA, Friedman urged the panel to consider a new system to supplement Social Security — one that would be universal, secure, and adequate.
“Regardless of the amount of tax incentives provided to employees and employers, the end result is that coverage is still too low, people have not saved adequately, and benefits are not secure,” she said. “We need to dream big to get where we need to be. While the economy is in turmoil, we must be even more creative in deploying our tax system to meet the challenges of today’s and tomorrow’s retirees.”
Read Karen Friedman’s full statement.