Voluntary Default Savings Plan Would Strengthen Retirement System

While the Social Security system provides a solid foundation that
keeps the vast majority of retirees out of poverty, it is insufficient
to provide a comfortable retirement income. The economic downturn has
future darkened the prospects for retirement security for many near- and
future retirees. The Center for Economic and Policy Research has
released a report proposing a system of supplemental retirement accounts that would help address this problem in the future.

The report, "A Voluntary Default Savings Plan: An Effective Supplement to Social Security,"
outlines a voluntary system of supplemental retirement accounts
involving default contributions of 3 percent of wages --up to $1,000 a
year-- and compares it with standards of retirement income and other
proposed systems.

The CEPR supplemental saving plan is a
mix of a defined contribution and defined benefit plan comparable to a
cash-balance private pension plan with an option for workers to opt-out.
To make the plan more affordable to lower-income workers, there would
be a savings subsidy, in addition to a match, which would phase out to
zero for those making over $40,000 per year.

The government would administer the
accounts to minimize administrative costs, although the investment of
the funds could be managed privately, as with the federal employees
Thrift Savings Plan. The accounts would offer a guaranteed 3.0 percent
rate of return with a default payback in the form of an annuity. The Tax
Policy Center of the Brooking Institution and Urban Institute modeled
the CEPR savings plan and demonstrated that it would lead to a
substantial increase in retirement savings for workers in the bottom two
quintiles of 15-20 percent.