The Retirement Security Project (RSP) has advanced an array of proposals that aim to make retirement saving more accessible and more rewarding for middle- and low-income households. The proposals would:
• promote the adoption of automatic features in 401(k) plans (e.g., enrollment, escalation, investment);
• establish Automatic IRAs;
• expand and improve the Saver’s Credit;
• allow taxpayers to split direct deposit of income tax refunds into several accounts; and
• reform the asset eligibility tests for meanstested government programs.
The goal of this paper is to provide rough, ballpark estimates of the potential effects of these proposals on private and national saving. We calculate that the enactment and implementation of the proposals could plausibly, over the long term, raise net national saving by 0.6 percent of GDP. These calculations are summarized in Table 1 and discussed below.
Several important caveats apply to the estimates.
First, most of the proposed policies have not yet been enacted or adopted (and those that have been are just beginning to be implemented). Therefore, with limited exceptions, significant real-world experience with the specific proposals does not exist, which means that the estimates are necessarily speculative. For purposes of these estimates, we assume that each policy is enacted or otherwise put into effect by Congress or the regulators, and we then base the estimated impacts on what we believe to be plausible assumptions about market responses once the policy is fully phased in and the market has adjusted to the policy change. However, we are keenly aware that reasonable and informed observers can readily differ regarding the magnitude and sometimes even the nature of the response to each policy change.
Second, these estimates deliberately disregard interactions among the policies. Although the interactions could have first-order effects relative to the direct effects, they are also highly uncertain. Indeed, it is unclear even in which direction the interactions would, on net, operate. Accordingly, these rough, ballpark calculations avoid the complexity and uncertainty of attempting to estimate the extent and net effect of the interactions.
Third, the estimates focus on the overall effect on saving, but it is important to emphasize that the proposals are designed not only to increase the level of saving but also to improve the effectiveness of federal saving incentives and the distribution of saving among different segments of the population. This paper does not attempt to estimate the distributional effects.
[The South Korean retirement scandal has] created huge risks to the integrity and legitimacy of the NPS [National Pension Service]. They know the math. There will have to be a push to diversify and decrease the overinvesting in a small number of companies.