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9781137395627

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Weller provides a fresh, new perspective on the challenges that Americans face when saving for retirement. His account helps us all to think more clearly about the types of labor market and financial risks that families face, how they are changing, and their impact on Americans' retirement security. Weller argues that exposure to these risks has risen just as these risks have become greater, leaving people's retirement prospects diminished. Further, the account flows nicely into a discussion of his innovative policy ideas, which deserve serious consideration and debate. This book has much to offer to retirement scholars, policymakers, and the interested public worried about their economic security in retirement. - Sarah Rosen Wartell, President, Urban Institute, USA The vast majority of working Americans - including more than 40 percent of workers over age 50 - feel unprepared for their own retirement. Weller effectively describes how our current system undermines the goal of retirement security. But more importantly, he offers a broad set of solutions to improve retirement savings, investing and withdrawals and even update Social Security to help low income families. Too often people only look at a single quick fix that misses the complexity of all that is broken. - Debra Bailey Whitman, Executive Vice President, AARP - Policy, Strategy and International Affairs Few issues vex Americans more than inadequate retirement preparation. And few books provide a clearer picture of the problem - and what can be done to fix it - than Weller's deeply researched analysis. Weller covers all the bases: the gaps in Social Security, the perils of employment-based accounts, the upside-down structure of tax breaks, and the huge financial barriers that stand between a risk-inundated middle class and sufficient retirement wealth. Perhaps most important, he lays out an ambitious but realistic path toward a stronger and fairer system that can provide the retirement security that so many Americans feel they have lost. - Jacob S. Hacker, Director of the Institution for Social and Policy Studies and Stanley B. Resor Professor of Political Science, Yale University, USA; author of The Great Risk Shift: The New Economic Insecurity and the Decline of the American Dream

Weller provides a fresh, new perspective on the challenges that Americans face when saving for retirement. His account helps us all to think more clearly about the types of labor market and financial risks that families face, how they are changing, and their impact on Americans' retirement security. Weller argues that exposure to these risks has risen just as these risks have become greater, leaving people's retirement prospects diminished. Further, the account flows nicely into a discussion of his innovative policy ideas, which deserve serious consideration and debate. This book has much to offer to retirement scholars, policymakers, and the interested public worried about their economic security in retirement. - Sarah Rosen Wartell, President, Urban Institute, USA The vast majority of working Americans - including more than 40 percent of workers over age 50 - feel unprepared for their own retirement. Weller effectively describes how our current system undermines the goal of retirement security. But more importantly, he offers a broad set of solutions to improve retirement savings, investing and withdrawals and even update Social Security to help low income families. Too often people only look at a single quick fix that misses the complexity of all that is broken. - Debra Bailey Whitman, Executive Vice President, AARP - Policy, Strategy and International Affairs

Weller provides a fresh, new perspective on the challenges that Americans face when saving for retirement. His account helps us all to think more clearly about the types of labor market and financial risks that families face, how they are changing, and their impact on Americans' retirement security. Weller argues that exposure to these risks has risen just as these risks have become greater, leaving people's retirement prospects diminished. Further, the account flows nicely into a discussion of his innovative policy ideas, which deserve serious consideration and debate. This book has much to offer to retirement scholars, policymakers, and the interested public worried about their economic security in retirement. - Sarah Rosen Wartell, President, Urban Institute, USA The vast majority of working Americans - including more than 40 percent of workers over age 50 - feel unprepared for their own retirement. Weller effectively describes how our current system undermines the goal of retirement security. But more importantly, he offers a broad set of solutions to improve retirement savings, investing and withdrawals and even update Social Security to help low income families. Too often people only look at a single quick fix that misses the complexity of all that is broken. - Debra Bailey Whitman, Executive Vice President, Policy, Strategy and International Affairs, AARP, USA Few issues vex Americans more than inadequate retirement preparation. And few books provide a clearer picture of the problem - and what can be done to fix it - than Weller's deeply researched analysis. Weller covers all the bases: the gaps in Social Security, the perils of employment-based accounts, the upside-down structure of tax breaks, and the huge financial barriers that stand between a risk-inundated middle class and sufficient retirement wealth. Perhaps most important, he lays out an ambitious but realistic path toward a stronger and fairer system that can provide the retirement security that so many Americans feel they have lost. - Jacob S. Hacker, Director of the Institution for Social and Policy Studies and Stanley B. Resor Professor of Political Science, Yale University, USA; author of The Great Risk Shift: The New Economic Insecurity and the Decline of the American Dream Review of book proposal by Christian Weller, 'Inefficient Incentives, Inadequate Savings: How Ill-Designed Savings Policies Have Left America's Middle Class Economically Vulnerable' I. General Review The proposed manuscript would chart the inefficient relationship between the types of economic risks confronting individuals (labor and market risks) and the current retirement savings incentives for working people, especially of those with moderate to middle income. Although several works have addressed the types of risk that working people face in the labor and investment markets, and several well-received books have focused on the inefficient tax incentives reflected in the current regulatory regime for retirement savings, no work to my knowledge has connected the risks and the inefficient tax preferences in a sustained and comprehensive study such as proposed by Dr. Weller. Dr. Weller's book would also tie together the tax treatment of all types of tax-preferred savings (home and retirement plans) moe thoroughly than other works to date. In my view, the proposed book would enlarge our understanding of the inefficiencies in current tax treatment of savings and will make a significant contribution to the literature. [Footnote: In particular, most of the orthodox critique of the tax preferences for retirement are based principally on two insights: that tax subsidy is top-heavy, favoring those taxpayers with the highest marginal tax rate; and the hardly surprisingly empirical analog that the savings response is low (for high-income individuals because it merely shifts savings into tax-preferred solutions and for other individuals because the tax incentives are too weak to increase savings among middle and moderate-income taxpayers in a sufficiently meaningful manner). The literature, of course, does explore the reasons that employers do not offer savings opportunities to moderate income workers and why they do not respond (or at least respond robustly) to opportunities when they are available. But Dr. Weller would add to this critique by exploring the relationships between labor and market risks and worker savings behavior, a link that has not adequately been developed. Although his book proposal has considerable merit apart from observing and analyzing this link, this will be the book's signature achievement. ] The outline of the book's organization is well-conceived and logical and the proposal's linkage of its policy analysis to the author's (and other's) economic research appears tight and insightful. I believe the book will receive considerable attention from both economic and legal scholars, as well as policy makers and, to a more limited extent, the general public. (Of course, I do not have too much expertise in determining the general public's interest.) I would estimate that it will have comparable sales (and shelf life) to the books that Dr. Weller notes in his second paragraph on page 8 (all of those books are in my personal library). The book will likely have adoptions in graduate level economics classes and in law schools retirement-policy and social security seminars. In addition, in my basic class on employee benefits I assign one or two scholarly books on retirement policy and would consider adopting Professor Weller's book there. (I do not, however, think it will be a strong seller in the law school market; most basic employee benefits courses in law schools simply assign a textbook and a retirement seminar is not generally offered at most law schools on an annual basis.) I also think that the book will command considerable media attention-hello Jon Stewart! I would strongly, even enthusiastically, recommend publication, although I believe Dr. Weller should consider some revisions and additions, which I will describe below. I do not think publication of the book, however, should turn on Dr. Weller's agreement with my critiques and suggestions, which are episodic and perhaps idiosyncratic and do not affect the proposed structure of the book or its likely significance. II. Critiques and Suggestions 1. The book assumes that there are fewer opportunities for workers to save today than in the past, and while this is true, the retirement system has never covered most workers in the private sector. As retirement savings vehicles go, defined benefit plans are generally superior to defined contribution plans (particularly those that require participants to make allocations among different investment products), but defined benefit plans never worked well for all workers, particularly shorter-term workers, at least younger short-term workers. So the number of people who participate in retirement plans has not changed much, but they are now generally participating in less efficient plans than they were two decades ago. What would be interesting, from my perspective, is what groups were particularly affected by the types of labor market changes that have taken place in the last twenty years and are now doing less well than earlier worker cohorts. (In effect, who are the additional 9% of people that the Retirement Research Center say were at retirement risk over those at risk in 2007?) 2. The book proposal at various points discusses middle-income, moderate income, and low income workers. It is not clear, to me, however, that the book will speak to lower income workers, who will generally resist savings opportunities because of immediate consumption needs, entirely apart from the inefficiency of tax incentives. (I assume that forced retirement savings for lower income workers will result in an increase in overall compensation of such workers.) And I am not sure whether the term 'moderate' income overlaps with middle or low income, or is simply a synonym for low income. This should probably be clarified. 3. The income-replacement concept, I think, is a fuzzy concept and has different definitions (for example, the Social Security replacement rate is based on career earnings, while the replacement rate for financial planning is generally based on income closer to retirement). Moreover, there is disagreement about what an adequate replacement rate is. And what begins as an adequate replacement rate will cease to be one as inflation erodes the value of the initial rate. Dr. Weller might explore these issues. He may also want to talk about how the target savings goal is sensitive to assumptions about wage growth and investment return. 4. Although I am not certain this neatly fits into Dr. Weller's concerns about do-it-yourself savings and retirement-savings tax preferences, investments pooled at the retirement plan level (as opposed to pooled through mutual funds at the individual level, as is generally the case in defined contribution plans), often subject participants to high (and often hidden) fees. Before ERISA, defined benefit and most defined contribution plans pooled funds at the plan level and did not pay retail-level fees. But it today's 401(k) world, investments are pooled at the participant rather than plan level and this results in some participants paying retail-level fees. This is a serious problem for people saving for retirement. But the issue of high fees does not directly relate to the inefficiencies of the tax preferences for savings, or to labor and investment market risks, so it may not fit into the book's primary theme. Still, it is important. 5. There has been spirited (and largely dishonest) debate about the size and distribution of the tax incentives for retirement plan savings, with some trade groups disputing the $100 billion figure that Dr. Weller cites in his proposal and also arguing that the distribution of the tax benefits is far less skewed toward the high-income individual than is conventionally thought. These are flawed analyses, although they do make important points about current tax expenditure and distributional analyses. I hope that Dr. Weller will address these critiques of the conventional wisdom and defend the conventional wisdom (which is certainly closer to the truth than the alternative positions on size and distribution of the tax preferences). 6. I would also like to see some discussion of the serious problem of leakage. Similar to the issue in 4, it is not clear that the leakage problem is directly related to the savings tax preference itself. But it would be useful for Dr. Weller to note where leakage occurs-particularly identifying which groups are most affected by it. He does indirectly note the problem of leakage with respect to periods of unemployment, but this topic could be expanded. (One connection between leakage and the current tax subsidies, is that the current subsidies generally depend on a worker's willingness to contribute to a retirement savings plan in the first place. It is more likely that people will contribute to such a plan if they know that they will have access to their savings before retirement. So in order to maximize the money going into the plan, we make it possible for people to take their money out of the plan before retirement.) 7. Dr. Weller's book will tie together labor and investment market risks to retirement savings behavior. Another type of risk, a risk that has changed over the last two decades, is family risk-particularly the risk of marital separation but also the risk of dependent parents and children. Incorporating this risk into his work is outside his proposal and expanding the work to include it would require considerable restructuring and additional work and might move outside his areas of expertise, but he might want to consider it in any event. He could also simply note the risk in his opening but indicate that the book does not explore it in depth. 8. Dr. Weller may want to incorporate into the book (actually I assume he is planning to) the current 'saver's credit,' which has been a predictable disappointment given its structure. 9. There are serious technical and conceptual issues with using tax credits in place of exclusions that have, I think, been largely ignored by its proponents. The most troubling issues is the implied exclusion on inside build-up, but there are also difficult issues of the proper taxation of payments when a credit exceeds marginal tax rates and where marginal tax rates vary over time. 10. The proposal is not clear whether simplification of current savings arrangements includes integrating retirement savings with shorter-term savings (such as for children's education). My own view is that this is not desirable, although the idea has proponents. If this is to be part of Dr. Weller's proposal, I would hope that he would want to note the criticisms of combining retirement savings programs with other types of savings. 11. The book might also explore some of the various proposals for retirement platforms that have pooled investments, mandatory annuities, and some intergenerational risk sharing. III. Conclusion Dr. Weller's book will meaningfully advance our understanding of the relationship between retirement savings, tax preferences, and risk. It should contribute in a visible way to, and perhaps alter, the ongoing national debate about retirement income security, savings behavior, and tax preferences. It is important work and should find commercially viable readership. Although I have made a number of suggestions, I would strongly endorse acceptance of the book proposal even if Dr. Weller does not embrace all or even most of my suggestions.

Author Information

Christian E. Weller is Professor of Public Policy at the University of Massachusetts Boston, USA, and Senior Fellow at the Center for American Progress, USA. He is a prolific author with well over 100 journal articles, edited volumes, book chapters, book reviews, and other publications, in addition to numerous policy reports and briefs. He serves on several editorial boards and is a past member of the executive boards of the Eastern Economic Association and the Labor and Employment Relations Association.

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