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To Boost Retirement Savings, Stop Giving Tax Breaks on 401(k)s

Automatically enrolling workers into savings plans and ending subsidies on 401Ks would help the federal budget and increase savings
To Boost Retirement Savings, Stop Giving Tax Breaks on 401(k)s
Photograph by Getty Images

Americans aren’t saving enough for retirement, especially the aging baby-boom generation. It’s a message we hear over and over, and the data are disconcerting. The Federal Reserve’s 2010 Survey of Consumer Finances puts the median balance in 401(k)s/IRAs for households nearing retirement at $120,000. The Employee Benefit Research Institute (EBRI) notes that 60 percent of workers 55 and older have less than $100,000 set aside for retirement. Blue chip consulting firm McKinsey calculates that two-thirds of boomers don’t have enough savings to maintain their pre-retirement standard of living once they’ve waved goodbye to their colleagues for the last time.

Numbers like these help illuminate why the Obama administration’s proposal to cap retirement savings in 401(k)s, IRAs, and similar tax-sheltered accounts isn’t going over well. The cap would also apply to traditional defined benefit pension plans as well. “As business owners reach the cap, they will lose their incentive to maintain a plan, and either shut it down or greatly reduce benefits,” responded Brian Graff, chief executive officer of the American Society of Pension Professionals and Actuaries, in a statement. The Wall Street Journal editorial page scoffed at the cap with this headline: “Now He’s After Your 401(k).” At a hearing, Senator Ben Cardin (D-Md.) questioned U.S. Treasury Secretary Jacob Lew whether the contribution limit would “make it more difficult for people to put money away for retirement.”