Even tax incentives may not boost retirement savings

When asked about the perfect model for an idyllic, state-assisted public retirement plan, many people automatically think of Europe and its cradle-to-grave coverage for workers.

But a new study by the EBRI indicates that even in the most progressive nations in Western Europe, getting citizens to save for retirement is still a challenge - as has been the case in the U.S.

EBRI's research, comparing the retirement systems of Denmark and those in the U.S., concluded that providing tax incentives for Danish workers did almost nothing to boost their savings rates - an observation some tax-hungry politicians in the United States may like to echo, as they look for ways to reallocate the taxes deferred to the future by DC plans.

While the two systems have many similarities, EBRI notes that in Denmark, the availability of an employment-based, tax-deferred retirement plan is not necesarrily tied to the tax-deferred status of the account.

EBRI also suggests that American politicians looking to capitalize on data downplaying the impact of preferential tax treatment for public policy goals - health insurance, home ownership and retirement included - should probably not read too much into the Danish example.

"The Danish study provided insight into the savings behavior of Danes, conditioned by the culture and influences of public policies and programs of Denmark," says Sudipto Banerjee, an EBRI research associate and author of the report.

"But the 'success' of workplace retirement plans in the United States depends on the behavior of two parties: workers who voluntarily elect to defer compensation, and employers that sponsor and, in many cases, contribute to them."

Banerjee also notes that if tax incentives for retirement plans in the U.S. were to dry up, many private employers have stated that they'd probably provide no retirement help whatsoever to their employees, leaving low-income workers in particular to suffer.

"While the study of Danish savings behaviors presented the impact of tax incentives and the 'nudges' of automatic mandatory savings as an 'either/or' situation, the optimal solution - certainly for a voluntary system such as the one currently in place in the U.S. - may well be a combination of the two," added Nevin Adams, co-director of EBRI's Center for Research on Retirement Income.

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