Federal Policy Ideas for Reversing Course on the Growing Retirement Savings Gap

This was a tough year for fans of progressive, equitable retirement policy. First, Congress decided to repeal regulations passed by the Department of Labor that made it easier to enact promising state efforts to provide retirement savings for the 55 million workers who do not have a retirement plan through their employer. Saving through employment is currently the most effective way to accumulate retirement savings. Then, over the summer, the Department of the Treasury terminated the myRA program. The purpose of myRA was to overcome the greatest barriers to saving for retirement that low-income households face, and the end of this program is not welcome news.

Tax Reform and Retirement

Currently, most of the legislative focus is on reforming the tax code, which is expected to happen before the year is up. Both the House and Senate have passed their proposals to overhaul the code, and now they are going through the process of reconciling their differences to come up with a final reform bill they both support. Much of what is being proposed by both chambers will harm working families and accelerate the racial wealth divide.

In terms of retirement, the House abandoned an earlier proposal to significantly reduce the amount households could deduct for 401(k) contributions, from $18,000 annually down to $2,400. While the reduction of this deduction is better for low-income families—it is “upside down” by disproportionately advantaging the top 1% over the bottom 60%—rather than helping the bottom 60%, the House was going to use the savings from this change to benefit the rich by funding tax cuts for the top 1% and corporations. While it is good the provision was kept out (at least in terms of what they planned to do with the savings), there is no question that the efforts of this Congress will make the top earners even wealthier at the expense of everyone else.

In this current political climate, it is more important than ever to raise our voices and push back against retirement policies that hurt working families and continue to examine, propose and advocate for strong programs and initiatives that will provide financial stability for as many families as possible.

Prosperity Now’s Recommendations for Improving Retirement Security

With this in mind, Prosperity Now is presenting our latest set of federal policy proposals that we believe will most effectively close the retirement gap, by releasing our updated retirement policy brief. Included in the brief are suggestions to reform retirement tax policy through improvements to the Saver’s Credit. To explore the policy recommendations in more detail, as well as read about the current retirement savings landscape, access our updated retirement policy brief by clicking here.

Some Good News

Fortunately, some good things have happened in the retirement policy space over the last few years. Most notably, a number of states have started to develop state-run or sponsored AutoIRA programs. These programs automatically enroll workers into retirement accounts, with the option to opt out, if they choose. Research shows that automatic programs like these are remarkably effective at saving for retirement, with participation rates of over 90%. In early 2014, the promise of these programs was gaining momentum, and states like California and Illinois were already starting to develop programs which were in the early stages of enactment.

Now the list of states with programs in development has grown to include Connecticut, Maryland and Oregon, and the California and Illinois programs are even closer to being fully launched. Moreover, these states are forging ahead despite setbacks at the federal level mentioned earlier that make these programs more vulnerable to attack.

Automatic programs are some of the most promising ways to address the lack of adequate retirement savings in this country. Because of the power of this approach, the adoption of AutoIRA at the federal level is one of the core recommendations in our updated policy brief.

Advocacy is Critical

We have solid research and policy ideas for improving retirement security for working families. What we currently lack is the political will. We can change this by continuing to speak up and advocate for the policies that most effectively help these households. Take the time today to join our campaigns. By signing up, you will receive important information about developments at the federal level that impact these families, and what you can do to push your legislators and other decision-makers to support actions that are helpful to them, or oppose those that are harmful. Your voice matters now more than ever!

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