South By North Strategies, Ltd.

In a recent presentation to Congress, Ross Eisenbrey of the Economic Policy Institute argued that public policies surrounding retirement have done little to help  middle- and low-income households prepare adequately for retirement. This results from the shift of retirement plans from defined-benefit ones (e.g., traditional pensions) to defined-contribution ones (e.g., 401(k)s).

Argues Eisenbrey:

How can it be that after 32 years and trillions in tax subsidies, 401(k)s have worsened—rather than improved—retirement security?  First and foremost, the design of the 401(k) ensures that its tax subsidies go disproportionately to high-income earners who least need the government’s help in saving, while providing little or nothing to low-income earners, many of whom struggle to meet their daily expenses, let alone save for a distant retirement.
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The Urban-Brookings Tax Policy Center estimates that 80% of the tax subsidies for retirement savings go to the top 20% of earners.  This is government welfare stood on its head.  There is no rationale for providing a larger tax break to a millionaire than to a Wal-Mart cashier for the same dollar contribution to a 401(k) plan (and nothing at all if the cashier owes payroll but not income tax).  Similarly, high earners receive more help from employers, who contribute 5% of earnings, on average, to the retirement accounts of households in the 75th percentile, compared with less than 2% for those at the 25th percentile, according to the Congressional Research Service.