Executive Summary

Retirement security in America is at a crossroads. The debate over Social Security solvency remains mired in partisan politics, more and more Americans are forced to work longer into their retirement years in order to maintain their standards of living, and in the wake of Enron many Americans are concerned about the safety of their retirement nest eggs. Meanwhile, the private pension system is simply not expanding enough to meet the needs of future retirees.

While Congress regularly adds new incentives to the growing array of tax savings vehicles, retirement security remains stagnant. The U.S. personal savings rate continues its steady decline and too few Americans are saving enough for retirement. Many low-income individuals do not have any savings, and pension coverage for those employed at small businesses was less than 20 percent. And among those who do have savings plans, a large number of them are depleting their retirement savings by cashing out their 401(k) plans when changing jobs.

To really boost savings, we must overhaul the current system to let workers decide how much they can save up to some uniform limit, give workers control over their investment choices, and fold all the existing tax-favored savings accounts into one "universal pension" that workers would take from job to job. The key components of a universal pension include:

• Universal Access. To ensure universal access, the federal government will provide financial incentives to encourage Americans at all income levels to open a universal pension when they start working.
• Greater Choice. Because they are under the control of the individual worker and not the employer, Universal pensions will provide the individual saver a greater amount of investment choices.
• Simplification. By eliminating the complex system of IRA accounts and replacing it with one single account called a "universal pension," all Americans -- not just the financially sophisticated -- will get a good deal. The universal pension would encompass all the benefits of existing IRAs while reducing the amount of rules, paperwork, and fees associated with the current system. Like most IRAs, the money contributed to the universal pension and the interest on that investment would grow tax-free until it is withdrawn.
• Portability. Universal pensions provide complete portability by going with every worker from job to job. Furthermore, an employee's 401(k) balance would automatically transfer to the individual's universal pension whenever the worker changed jobs.
• Protecting Worker Savings. To encourage diversification and decrease the likelihood that investors would lose their life savings because their portfolios were overly concentrated in their employer's stock, workers -- after completing the three-year vesting period -- could place a portion of their 401(k) into their universal pension. In addition, unlike IRAs, universal pensions would be protected from bankruptcy proceedings.

Blueprint Keywords: Extra Tax Cuts

Paul Weinstein Jr. is a senior fellow at the Progressive Policy Institute.