Many low-income workers don’t contribute to their company’s 401(k) plan, but labor economist Teresa Ghillarducci says they would have saved money if there was a government pension plan with a more generous pay match.
Guillarducci’s plan to fix the retirement system November 26 . was the subject of baron’s Article. The 64-year-old professor at the New School in New York City believes America spends too much on tax subsidies for 401(k) plans used by high-income Americans, while millions of Americans don’t have retirement savings. Is.
Instead, she proposes a government-run pension plan that would be linked to each worker’s Social Security account and provide additional monthly retirement income. It will be based on the popular and much-studied Thrift Savings Plan for Federal Workers and will include low-fee market investments managed by professionals.
The article garnered over 130 comments baron’s Readers, many of them criticize Guillarducci’s proposed reform. He notes that millions of Americans choose not to participate in their employer-sponsored savings plans and suspects it will be different from a government-run plan.
In a second interview, Gilarducci responded to readers’ criticisms. For starters, he believes, the incentives in most 401(k) plans are mistaken for encouraging participation by low-income workers.
“Low income people shouldn’t be blamed for not saving,” she says. “It’s the structure of the system that doesn’t give them the same incentives as people with higher incomes.”
One of the big appeals of a 401(k) plan for high-income workers is that it allows them to defer taxes on a portion of their wages. But people with low incomes often pay little or no income tax, so deferring taxes doesn’t help them much.
What will motivate them to save? A more generous match for worker contributions, Ghillarducci says. Many 401(k) plans match $1 for every $2 workers. ghillarducci will Reverse the numbers.
“Our plan assumes that the government match will be much larger than employee contributions,” she says. “Whereas in 401k plans it’s the reverse.”
Given a more generous match, she says, lower-income workers would save more. For proof, she points to the federal Thrift Savings Plan. She says that when the plan raised its match, the participation rate of low-wage workers increased.
“The Thrift Savings Plan is slowly widening its match, with more low-income workers participating,” she says. “That convinced us that the official match should be bigger.”
Ghillarducci has proposed cutting subsidies for 401(k) plans because they primarily benefit affluent workers. it annoyed some baron’s Readers said they had accumulated a sizable nest egg just because of their 401(k)s.
The professor didn’t hold back in his most recent interview. “Congratulations to anyone who has done well with the 401(k) system,” she says. “Our solution is because the majority of workers didn’t do well with the current system.”
Some readers have written that government programs like Social Security tend to be useless, saying that creating another would result in more waste.
Gillarducci pushed back. “Social Security is one of the more successful government programs we have,” she says. “Administrative fee is low. Employers and employees support it.”
Other readers saw Guillarducci’s proposal as a socialist plan of redistribution of wealth. She replies that her initiative is based on getting more workers to invest in the stock market, which is the bastion of capitalism. “Socialists don’t see me as one,” she says. “Don’t insult the socialists by calling me one.”
In the original article, Gilarducci, a working professor with a permanent chair at the New School, says he plans to work in the ’70s because of the speed and content of his work. This has led some readers to complain that it had a padded arrangement.
“I completely agree,” replied Ghillarducci. “I’m grateful for it every day. I worked for it.”
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