Automatic: Changing the Way America Saves

Brookings Institution Press
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Automatic offers an innovative new way to think about how Americans can save for retirement.

Over the past quarter century, America's pension system has shifted away from defined benefit plans and toward defined contribution savings programs such as 401(k)s and IRAs. There is much to be done to improve the defined contribution system. Many workers fail to participate and those who do often contribute too little, invest the funds poorly, and are not adequately prepared to manage funds while in retirement.

To resolve these problems, the authors propose that employees should be automatically enrolled into a 401(k) plan when they are hired, with the right to opt out, change the amount that they contribute, or change investment choices if they choose. If the employer does not sponsor a 401(k) or similar retirement plan, they would be enrolled in a payroll deduction Automatic IRA. This vision of a transformed defined contribution system incorporates key positive features of defined benefit plans to improve retirement security. Employess contributions would increase over time, their investments would benefit from professional management and rebalancing, and they would receive lifetime income upon retirement. These automatic features will make the 401(k) and similar plans a more effective tool for retirement saving, and they can be extended to the many workers who do not currently have access to an employer plan.

In Automatic, the authors present proposals to implement automatic features in all phases of the 401(k) and in IRAs for workers with no employer plan. They also draw from the experience of countries that have implemented automatic saving structures.

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About the author

William G. Gale holds the Arjay and Frances Miller Chair in Federal Economic Policy at the Brookings Institution and is also director of The Retirement Security Project. J. Mark Iwry is senior adviser to the secretary and deputy assistant treasury secretary for retirement and health policy at the United States Department of the Treasury. David C. John is a principal of the Retirement Security Project and a senior research fellow at the Thomas A. Roe Institute for Economic Policy Studies at the Heritage Foundation. Lina Walker is a strategic policy adviser with AARP's Public Policy Institute.

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Additional Information

Publisher
Brookings Institution Press
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Published on
Dec 1, 2011
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Pages
278
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ISBN
9780815703822
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Language
English
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Genres
Business & Economics / Consumer Behavior
Business & Economics / Government & Business
Business & Economics / Personal Finance / Retirement Planning
Political Science / Public Policy / Economic Policy
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Content Protection
This content is DRM protected.
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The private pension system, together with Social Security, has provided millions of Americans with income security in retirement. But over the past thirty years, pension coverage has stagnated, leaving behind some vulnerable groups. Defined contribution plans have exposed workers to greater investment risk, while cash balance and other hybrid plans may have adverse effects on older workers caught in the transition. Pension regulations, infamous for their complexity, can be bewildering to policy analysts and policymakers. Private Pensions and Public Policies sheds timely and much-needed light on specific issues within the broader context and framework of pension reform. Contributors focus on topics that must be addressed in any reform effort, including the effects of the shift in emphasis toward defined contribution plans (after the 1974 Employee Retirement Income and Security Act) and hybrid plans (from the 1990s); regulatory issues such as nondiscrimination rules and contribution limits; how to increase the information available to participants and improve financial education; how participants in defined contribution plans make choices on questions such as asset allocation, back-loaded versus front-loaded saving, and annuities versus lump sum distributions; and the interaction of the private pension system with Social Security. Contributors include Robert L. Clark (North Carolina State University), Sylvester J. Schieber (Watson Wyatt Worldwide), Richard A. Ippolito (George Mason University School of Law), Alan L. Gustman (Dartmouth College), Thomas L. Steinmeier (Texas Tech University), John Karl Scholz (University of Wisconsin), Dean M. Maki, (JPMorgan Chase), William Even (Miami University of Ohio), Jagadeesh Gokhale (American Enterprise Institute), Laurence J. Kotlikoff (Boston University), Mark J. Warshawsky (TIAA-CREF Institute), Annika Sunden (Boston College), Andrew A. Samwick (Dartmouth College), David A. Wise (Harvard University), Joel Dickson (The Vanguard Group), Peter Merrill (PriceWaterhouseCoopers), Kent Smetters (Wharton School), Yuewu Xu (TIAA-CREF Institute), Janemarie Mulvey (Watson Wyatt Worldwide), Peter Orszag (Sebago Associates, Inc.), James M. Poterba (Massachusetts Institute of Technology), John B. Shoven (Stanford University), Clemens Sialm (University of Michigan), Leslie E. Papke (Michigan State University), Jeffrey R. Brown (Harvard University), and Michael Hurd (RAND Corporation).
The private pension system, together with Social Security, has provided millions of Americans with income security in retirement. But over the past thirty years, pension coverage has stagnated, leaving behind some vulnerable groups. Defined contribution plans have exposed workers to greater investment risk, while cash balance and other hybrid plans may have adverse effects on older workers caught in the transition. Pension regulations, infamous for their complexity, can be bewildering to policy analysts and policymakers. Private Pensions and Public Policies sheds timely and much-needed light on specific issues within the broader context and framework of pension reform. Contributors focus on topics that must be addressed in any reform effort, including the effects of the shift in emphasis toward defined contribution plans (after the 1974 Employee Retirement Income and Security Act) and hybrid plans (from the 1990s); regulatory issues such as nondiscrimination rules and contribution limits; how to increase the information available to participants and improve financial education; how participants in defined contribution plans make choices on questions such as asset allocation, back-loaded versus front-loaded saving, and annuities versus lump sum distributions; and the interaction of the private pension system with Social Security. Contributors include Robert L. Clark (North Carolina State University), Sylvester J. Schieber (Watson Wyatt Worldwide), Richard A. Ippolito (George Mason University School of Law), Alan L. Gustman (Dartmouth College), Thomas L. Steinmeier (Texas Tech University), John Karl Scholz (University of Wisconsin), Dean M. Maki, (JPMorgan Chase), William Even (Miami University of Ohio), Jagadeesh Gokhale (American Enterprise Institute), Laurence J. Kotlikoff (Boston University), Mark J. Warshawsky (TIAA-CREF Institute), Annika Sunden (Boston College), Andrew A. Samwick (Dartmouth College), David A. Wise (Harvard University), Joel Dickson (The Vanguard Group), Peter Merrill (PriceWaterhouseCoopers), Kent Smetters (Wharton School), Yuewu Xu (TIAA-CREF Institute), Janemarie Mulvey (Watson Wyatt Worldwide), Peter Orszag (Sebago Associates, Inc.), James M. Poterba (Massachusetts Institute of Technology), John B. Shoven (Stanford University), Clemens Sialm (University of Michigan), Leslie E. Papke (Michigan State University), Jeffrey R. Brown (Harvard University), and Michael Hurd (RAND Corporation).
Designed to reach a wide audience of scholars and policymakers, this new series contains studies on urban sprawl, crime, taxes, education, poverty, and related subjects. "This journal will set the tone for urban economics for the coming decades. It will play a major role not only in academia, but also in ensuring that we have better urban economic policy." —George Akerlof, University of California, Berkeley Contents of the third issue include: "Local Government Fiscal Structure and Metropolitan Consolidation" Dennis Epple (Carnegie-Mellon University), Stephen Calabrese (University of South Florida), and Glenn Cassidy Should the Suburbs Help Finance Central City Public Services? Andrew Haughwout (Federal Reserve Bank of NY) and Robert Inman (University of Pennsylvania) "Tax Incentives and the City" Therese McGuire (UCLA) and Teresa Garcia-Mila (Universitat Pompeu Fabra) "Does Gentrification Harm the Poor?" Jacob Vigdor (Duke University) "Corruption in Cities: Graft and Politics in American Cities at the Turn of the Twentieth Century" Rebecca Menes (George Mason University) "Immigrant Children and Urban Schools: Lessons from New York on Segregation, Resources and School Attendance Patterns" Ingrid Gould Ellen, Katherine O'Regan, Amy Ellen Schwartz, and Leanna Stiefel (New York University) William G. Gale is the Arjay and Frances Fearing Miller Chair in Federal Economic Policy in the Economic Studies program at the Brookings Institution. Janet Roterber Pack is professor public policy and management and real estate at the Wharton School, University of Pennsylvania.
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