Saying that "a minimum pension sounds like a minimum wage, and it is," a new report from think-tank and advocacy group Third Way has suggested that a minimum pension plan should become law.
While the actual number of people in the U.S. who do not participate in or are not offered an employer-provided plan varies, depending on whose statistics are used, the number is large. Even when they do save, most workers don't put away enough to avoid the possibility of running out of money during retirement.
The solution, according to Third Way, is a minimum pension plan that will require employers to sock away 50 cents per hour for each employee — either into an existing defined benefit or defined contribution plan that qualifies under the new proposed law, or into an Auto-IRA Account or a Savings Plan for Universal Retirement (SPUR) Account — "new, simple investment vehicles" that the report also proposes.
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The new accounts would be indexed to inflation, unlike the minimum wage.
Auto-IRA Accounts would be "(t)he same as existing IRAs, offered by private financial companies.
Employers would select a qualified investment company as the default vehicle, but employees would be allowed to opt into an IRA of their own choosing."
SPUR accounts, for employers with fewer than 50 employees, would be "unsubsidized, privately managed individual accounts overseen by a government board."
The think-tank said its proposal would not affect Social Security. However, its paper also mentions Social Security serving as a "backstop" against "market risk" to which the proposed guaranteed pension would be subject.
The employer contribution would come to about $1,000 a year per employee, assuming a 40-hour workweek, the report said.
The report estimates that "an individual who begins earning income at age 22, receives the minimum employer contribution each year, personally makes no contributions of his own, and works full-time until retiring at age 67" could amass "a SPUR or IRA Account balance of approximately $160,000, in 2013 dollars" — so long as "stocks and bonds enjoy the same average rates of return as they did over the last 45 years."
Third Way sent its report to lawmakers in Congress considering retirement system reforms.
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