Posted: Tuesday, March 7, 2006 6:00 pm
Finding consensus in today’s polarized political climate sometimes seems like an impossibility.
So when think tanks from different ends of the political spectrum find common ground on something, it’s worth a serious look.
That’s doubly true when the consensus is on a plan for something as important as boosting Americans’ saving rate.
Both the conservative Heritage Foundation and the liberal Brookings Institution support automatic IRAs as a way to help Americans put away more tax-free money for retirement.
Last month, the federal government reported that the U.S. savings rate was negative for an entire year, the first time that has occurred since the Depression.
While some analysts contended that the government’s methodology — investments in stocks and equity in homeownership were not counted — exaggerates the problem, there is widespread agreement that the trend toward saving less is worrisome.
Fewer employers are offering pension plans, and Social Security is headed for financial problems as baby boomers start drawing their checks and the ratio of recipients to workers drops.
Social Security was never intended to entitle Americans to a comfortable retirement. But authorities say one out of every five Americans has no other source of income in retirement.
The automatic IRA proposed by David John of the Heritage Foundation and J. Mark Iwry of Brookings would require employers with more than 10 workers to establish payroll withholding for the automatic IRAs. Tax credit incentives also would be offered to smaller employers to provide the automatic IRAs.
Employers would either automatically enroll employees and allow them to opt out, or at minimum require them to sign a form to indicate whether they wanted to participate.
Those tactics have raised enrollment rates for 401(k) accounts, according to large employers. Presumably they would have the same effect at smaller firms.
Because investment managers might not be too enthusiastic about handling numerous small accounts, the two authors suggest the funds could be managed in a broadly diversified portfolio by a private institution under contract with the federal government. Employees might also be given the option of choosing their own financial institution to handle their IRAs.
The plan already has won the endorsement of the AARP, which urged Congress to enact the proposal.
The people who need the plan the most, however, are young Americans in their 20s and 30s, decades away from AARP membership. Republicans and Democrats in Congress ought to take a break from their incessant partisan squabbling to do something useful. The plan has bipartisan promise.