President Clinton's proposal to provide pensions for the poorest Americans should be financed with a 5% tax on the earnings of qualified pension plans, according to two pension experts.
The government, rather than employers, should provide retirement benefits for employees earning less than $20,000 annually because the present system is inadequate, wrote Daniel Halperin and Alicia Munnell in a paper they co-wrote, titled "How the Pension System Should be Reformed."
The two professors - Mr. Halperin is a Harvard University law professor and Ms. Munnell is a professor of economics at Boston College - also concluded that retirement benefits for middle-income workers need to be strengthened.
The paper was presented in September at the Brookings Institute Conference titled "ERISA after 25 Years: A Framework for Evaluating Pension Reform."
Almost 55 million American workers lack pension coverage, according to the authors, and for those who do have coverage, the benefits are inadequate, which brings up two questions, the authors said.
"The first is whether these individuals need additional income or whether Social Security alone currently provides an adequate level of (income) replacement," they wrote.
"The second question is, if additional retirement income is needed, whether employer-sponsored pension plans are the best way to provide supplementary benefits."
The solution, wrote Mr. Halperin and Ms. Munnell, is to exclude those earning less than $20,000 from employer plans and have them receive their retirement income directly from the government.
In exchange for relief from the responsibility of providing pensions for the working poor, employers would pay a 5% tax on the earnings of their qualified plans. The money would be used to set up, for the working poor only, the Universal Savings Accounts President Clinton proposed earlier this year.
"The current pension system is providing very little to the bottom 40% of the income distribution," wrote Mr. Halperin and Ms. Munnell.
They also proposed benefits for middle-income employees be strengthened by forcing companies to provide equivalent benefits to all employees in a given line of business, regardless of income.
"Non-discrimination would mean that all employees were covered by the same provisions. If the plan failed this simple test, none of the participants would be eligible for favorable tax treatment," they wrote.