Those in favor of Social Security privatization refer favorably to the ability of Social Security private accounts to help low-income workers build retirement wealth. Yet a recent report from the Center on Budget and Policy Priorities and the Retirement Security Project points to a simple step that could be taken now to increase retirement savings among those with low incomes.
According to the report, only 22 percent of those with incomes below $20,000 participate in an employer-sponsored retirement plan, compared to 51 percent of all employees. One of the impediments to saving the authors point to is the asset limit imposed in almost all means-tested benefit programs-Food Stamps, TANF, Medicaid, and Supplemental Security Income.
Currently these benefit programs only allow recipients to own assets up to a certain value, usually $2,000 or $3,000 depending on the program. Assets include savings accounts, cars over a certain value, and, frequently, retirement accounts (houses in which recipients live are excluded). While most benefit programs do not count traditional defined benefit pensions against applicants, they frequently do count defined contribution accounts like 401(k)s and 403(b)s, as well as IRAs. If applicants' accounts are worth too much, they will not receive benefits.
Because defined benefit pensions are becoming less common, and more companies adopt defined contribution plans, the number of employees affected by asset limits is no doubt growing.
If low-income families are asked to make a choice between health care, food stamps, or cash benefits now, and retirement in the future, most families will, quite rationally, forego retirement. In order to allow low-income families to save while also maintaining eligibility for much-needed benefits, the report suggests that asset limits either be raised, or eliminated altogether. It seems like a good place to start.
