In the midst of the chaos of this election cycle, some important themes are emerging. In particular, voters are highly worried about retirement security. Indeed, 91 percent of voters in four swing states agree that most Americans are not prepared for retirement. That’s according to a poll by the Progressive Policy Institute (PPI), in partnership with veteran Democratic pollster Peter Brodntiz.
That’s why it’s time for a Universal Pension system that would help all U.S. workers save for retirement by eliminating the need to navigate the maze of tax-favored retirement plans, and making their job-based pensions portable. Specifically, the UP would reduce today’s welter of tax-favored retirement accounts into one universal IRA account (with a choice between a traditional or Roth-style IRA).
The accounts would be managed by private firms, under the supervision of the individual rather than the employer, giving workers more control over their investment choices. Furthermore, when workers switch jobs, they can rollover their existing 401(k) or other company pension plans into their Universal Pension reducing paperwork burdens and financial fees for both employers and employees.
And by helping all workers start saving for retirement from their very first day of work, the Universal Pension would harness the power of compound interest for everyone. It would help to close a yawning wealth gap at a time when wealth inequality is roughly 10 times wider than income inequality.
This proposal is a natural for this election season, where voters are looking for real solutions to tough problems. Our poll surveyed voters in four states that could play a pivotal role in the coming presidential and senate elections: Florida, Ohio, Colorado, and Nevada. In particular, we focused on swing voters—people who have recently voted for candidates from different parties. These voters, constituting about a fifth of the electorate in these battleground states, have the potential of holding the balance of power at the ballot box.
There is widespread agreement within this group on many issues. Battleground voters rate economic growth as a top priority and a vast majority agree on the importance of American companies being able to compete globally. They also agree that workers benefit from the global competition and success but that it is essential to increase access to education and job training in order for U.S. workers to stay competitive in the new American economy.
And they care about retirement security. Social Security income, while an integral component of retirement security, is not enough on its own to support a decent retirement, and was never intended to be.
However, the personal savings rate in the U.S. has plummeted from nearly 11.5 percent in 1982 to 5.1 percent in 2015. And since tax-favored savings programs like 401(k)s and IRAs mainly benefit the top half of U.S. households, lower-income families are left with disproportionately lower savings rate on average. The perverse, if unintended, result of federal pension policy has thus been to aggravate America’s growing wealth gap.
The existing federal pension system is leaving many Americans with savings that fall short at retirement age and many others with no personal savings at all, left to depend on Social Security alone. Forty-one percent of near-retirement households have no personal retirement savings at all.
But even those families that have do have some personal savings are nonetheless failing to save enough for a secure retirement. Among the 59 percent of near-retirement households that do have some retirement savings, the median amount is approximately $104,000—which for a 60 year old, would translate to an annuity of about $310 per month. And so Social Security is left to cover the balance—accounting for an average of 52 percent of income for retirement age households.
It’s clear that the existing tangled web that is the U.S. retirement system does not work for American workers. Recent reforms, such as auto-enroll 401(k)s, have fallen short because they are designed to build on the existing pension system when what we really need is across-the-board modernization.
Our proposed Universal Pension would simplify the system and foster participation by reducing the amount of paperwork, financial sophistication, and fees that are required to save. Participation would be voluntary, but working Americans would be encouraged to open an account with a $500 tax rebate. And contributions by workers without tax liability would be eligible for an expanded refundable credit to bolster retirement savings for lower-income families.
Federal pension policy should support all American workers in growing their personal pensions and providing stability in their retirement. The existing policies, while well-intended, provide greater incentives to better-off families than to low-income and working families. Policymakers ought to take urgent action to rectify this problem—making access to job-based pensions truly universal. This fix will also help us boost personal savings rates and narrow America’s troubling disparities of wealth.
Di Ionno is an economist at the Progressive Policy Institute.