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Making the Economy Fairer with Universal 401(k)

Universal 401(k) ensures access to a savings account while also promoting the U.S. economy as a whole.

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.” Now this newly elected Congress must begin answering the question that The Wall Street Journal asked this morning (subscription required): How can we begin bridging the inequality gap without diminishing economic growth?

Center for American Progress Senior Fellow Gene Sperling developed a key solution last year to ensure that all Americans can retire with dignity. Sperling is pushing for the federal government to work with workers and employers to develop a universal 401(k).

Creating a universal 401(k) will ensure that all Americans have access to a savings plan. Currently only 55 percent of full-time working Americans are offered private retirement savings plans of any kind through their employer, and these numbers get much smaller for minorities and part-time workers. Sperling’s plan would provide:

  • A $2-to-$1 matching credit for the first $2,000 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.

Workers should automatically be enrolled in new accounts in order to make this plan effective. 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. Universal 401(k) makes the economy fairer in the face of eroding pensions while also promoting the U.S. economy as a whole.

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