Pension reforms may not have favored the intended goal


Over the past 25 years, pension reforms in the US have attempted to encourage saving among low- and middle-income Americans, but these measures may have disproportionately benefited wealthy and high-income individuals.

In a recent research paper titled “The Great American Retirement Fraud,” University of Virginia law professor Michael Doran argues that the Congressional roadmap to pension reform that began in 1996 has failed Americans, reports PlanSponsor.

“The pension reform project of the past 25 years has been and remains a political fraud,” Doran told the newspaper. “Neither the goal nor the effect of the legislative changes was to increase pension security for the vast majority of American workers.”

Rather than improve pension security for low- and middle-income workers, Doran claims that the pension plan changes passed by Congress have only helped employer-sponsored plans and Individual Retirement Accounts (IRAs), which largely benefited wealthy individuals with the means and inclination to make the money save for retirement, regardless of whether federal law provides incentives to do so.

New contribution caps and tax subsidies were included in the pension reform measures, representing a departure from previous Congressional pension policy goals, which prioritized protecting workers from abusive practices by employers and financial services firms, along with capping the cost of pension savings subsidies, according to Doran.

“It’s not just a matter of benevolent negligence,” says Doran. “The huge retirement savings grants that Congress has handed out to higher earners have diverted federal funds away from other measures that would increase pension security for low- and middle-income earners, whether through private savings or improvements to Social Security. These missed opportunities have left middle-income earners little better off than they were in the early 1990s. Remarkably, the retirement savings of low-income earners have declined over the past 25 years.”

Still, other market watchers believe that US retirement savings have still been a big hit, as these plans have helped Americans save trillions of dollars for retirement.

“By any measure, its voluntary components — employer-sponsored plans and IRAs — are the most successful in the world, with more than $37 trillion in assets,” Peter Brady, senior economic advisor at the Investment Company Institute (ICI), told PlanSponsor. “In fact, recent research shows that US retirees receive as much income from these plans as they do from Social Security. The specified contribution [DC] Plans, which are the focus of the paper, are extremely popular with workers because of the investment options they offer, as well as their flexibility and portability.”

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