As traditional pensions, or defined benefit plans, are replaced by defined contribution plans, workers in New York City and in the nation have less retirement security. Coverage rates for employer plans are falling. Most defined contribution retirement accounts are in the form of 401(k)-type plans - voluntary, individual, self-directed financial accounts that enjoy tax-favored status under federal, state, and city tax rules. Re-arranging tax subsidies from a tax deduction to a flat tax credit would provide workers with annual accumulations (indexed for inflation) to supplement Social Security and provide an adequate standard of living in retirement. These accumulations could then be invested in a "Guaranteed Retirement Account," a vehicle that allows workers and employers to contribute to a safely and efficiently administered pension account. This change would be revenue neutral for the city, while increasing retirement security for workers at small- and medium-sized businesses without imposing additional cost on their employers.
Authors: Lauren Schmitz and Teresa Ghilarducci