NCPA - National Center for Policy Analysis

REFORMING BABY-BOOMER RETIREMENT

April 30, 2007

As 77 million members of the baby-boom generation begin to retire, America is about to experience one of the most wrenching demographic changes in its history.  The institutions we have relied upon in the past are completely unprepared for what lies ahead, says the National Center for Policy Analysis (NCPA).

What steps can be taken to secure the retirement of baby boomers and future generations of retirees?

Improve Traditional Pension Plans:

  • The current system encourages employers to unload unfunded pension obligations on the federal pension insurance agency -- resulting in smaller retiree benefits and potentially large burdens for taxpayers.
  • Clearly, corporations should be required to fully fund their own pension plans.
  • The authors also encourage immediate vesting and full portability of those benefits.

Improve 401(k) Plans:

  • More than half of all workers invest in a 401(k) or similar savings vehicle, but not enough people are investing appropriately for their future.
  • They either do not invest enough or they pursue investment strategies that will not provide an adequate retirement income.
  • To correct this problem, employers should be given a safe harbor against lawsuits and receive other regulatory relief if they invest employees in diversified portfolios, follow an investment strategy that becomes more conservative as the employee ages, and convert the funds into an annuity at retirement -- unless the employee specifically opts out.

Expand Individual Retirement Accounts (IRAs):

  • Current tax law penalizes those who do not have employer-sponsored savings plans.
  • For example, participants in an employer-sponsored 401(k) plan can contribute up to $15,000 annually, while nonparticipants can contribute only $4,000 to a tax-advantaged IRA.
  • We should treat all savers equally.

Source: John C. Goodman, Devon M. Herrick and Matt Moore, "10 Steps to Reforming Baby-Boomer Retirement," National Center for Policy Analysis/Kiplinger.com, April 28, 2007; John C. Goodman, Devon Herrick and Matt Moore, "Ten Steps to Reforming Baby Boomer Retirement," National Center for Policy Analysis, Policy Report No. 283, March 2006.

 

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