Retirement Plans: a Wider Field

The House of Representatives Wednesday overwhelmingly approved legislation aimed at boosting retirement savings by workers. The measure would stimulate savings and make the administration of retirement accounts easier for employers. But it should be amended to modify provisions that tilt the benefits heavily in favor of upper-income workers and to add provisions encouraging employers to set up retirement plans for their moderate- and low-income employees.

The U.S. private-sector pension system is a form of partnership between employers, which sponsor the pension plans, and the government, which provides encouragement through substantial tax benefits. Lower-income and part-time workers who live from paycheck to paycheck are mostly cut off from this partnership. The House-approved measure doesn’t go far enough to extend the benefits to those workers.

The best way to expand the partnership would be to offer greater tax incentives to employers to set up pension plans known as “money purchase” accounts under which only the employer, not the employee, contributes. This would expand coverage among the half of the work force currently not covered by any private pension system.

Raising the salary limit on which pension contributions can be made from $170,000 to $200,000 and boosting the contribution limits for both the individual retirement accounts and 401(k) accounts would benefit only a tiny fraction of the work force and should be trimmed back. Even more objectionable is that the bill contains language that would encourage small employers to set up retirement accounts for themselves and spouses and drop plans for employees.

What the Senate should do before approving this measure is amend it to push employers--through tax deductions or credits--to offer meaningful pension benefits to more, not less, of the work force.