Center for American Progress

Bridging the Inequality Gap with a Universal 401(k)

Bridging the Inequality Gap with a Universal 401(k)

Universal retirement savings plans would make the economy fairer in the face of eroding pensions.

Only 55 percent of full-time working Americans are currently offered private retirement savings plans of any kind through their employer, and these numbers get much smaller for minorities and part-time workers. It is therefore no wonder that only one-quarter of American workers are very confident that they will be financially secure in retirement.

Creating a universal 401(k) will ensure that all Americans have access to a savings plan. The midterm elections swept an array of new progressive senators and representatives into office, many of whom ran campaigns on promises to “make our economy fairer.” Implementing a universal 401(k) would fulfill this promise, helping bridge the inequality gap without diminishing economic growth.

This policy solution, developed by Center for American Progress Senior Fellow Gene Sperling would provide:

  • A $2-to-$1 matching refundable tax credit for the first $2,000 that low income families save each year;
  • A $1-to-$1 match for middle income families; and
  • A $0.50-to-$1 match for those in the upper middle class.

This would provide a new Flat Tax Incentive for 30 percent of savings put aside by all workers. This would also replace our current tax deductibility savings schemes that offer little incentive to save for lower and moderate income families.

The Universal 401(k) system would additionally include a single, portable account that benefits families by continuing to provide savings incentives for those between jobs and parents who take time off to raise children. Because workers could roll over all accumulated retirement savings from employer provided pensions plans into their portable Universal 401 (k) whenever they switched jobs or left the workforce, the current tendency of younger workers to “cash out” when they are changing jobs would decrease.

Workers should automatically be enrolled in new accounts in order to make this plan effective. Research has shown that in firms that offer 401 (k) plans, one in four workers chooses not to participate. The federal government should also authorize workers to automatically deposit portions of their EITC or Child Tax Credit refunds directly into these accounts to help low and moderate income families build nest eggs.

Universal retirement savings accounts also make economic sense. These accounts would increase national savings, putting the U.S. in a more fiscally sound position to reach an eventual agreement on Social Security reform.

The current retirement savings system exacerbates existing inequalities by giving the biggest incentives to the most well-off and the smallest incentives to those with low and moderate incomes. A Universal 401k plan would spread individual savings and wealth creation to tens of millions of American families currently falling through the cracks.

Universal 401(k) makes the economy fairer in the face of eroding pensions, while also promoting the U.S. economy as a whole.

The Center for American Progress Action Fund released a memo in November urging the 110th Congress to take steps to create a Universal 401(k) plan before its August recess. View the full agenda here:

To get in touch with Gene Sperling, our expert on this topic, please contact:

For TV, Sean Gibbons, Director of Media Strategy 202.682.1611 or
For radio
, Theo LeCompte, Media Strategy Manager 202.741.6268 or
For print
, Trevor Kincaid, Deputy Press Secretary 202.741.6273 or

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