Will the U.S. Kick 401(k) Subsidies Off the Cliff?

In an employer-dependent system, tax subsidy may be necessary to motivate employers to offer retirement benefits to their employees

At a time of nearly desperate negotiations to find savings needed to avert the fiscal cliff, ending the taxpayer subsidy–to the tune of $100 billion–of retirement savings accounts seems to many to be a no-brainer.

After all, a comprehensive and authoritative new study estimates that each dollar spent on the subsidy results in just a penny in increased savings. The study by U.S. and Danish researchers looked at Denmark’s retirement system because it is similar to ours and because the Danish government keeps far more detailed data on saving patterns.

Given that America’s retirement system is employer-based, Brown argues that employers need a “compelling financial reason” to offer their employees retirement benefits.

Should Washington go forward with caps on retirement contribution, the effect according to Goldstein would be to increase the importance of IRAs and annuities as a vehicle for tax-deferred savings.

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