How to increase retirement savings of 60 million employees – Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

From Pensions & Investments

Senate Republicans are voting to repeal the Labor Department’s recent rules that would have expressly allowed states and cities to sponsor a type of individual retirement account, called an automatic IRA. These votes will rescind those rules, because they already have been rejected by House Republicans and the administration supports rescinding them.

While Republicans objected to a patchwork of state-sponsored retirement plans, Congress should promptly pass a federal automatic IRA invested by the private sector. This vehicle, developed by conservatives, is the most feasible way of substantially increasing retirement savings in the U.S.

About a third of all Americans have no retirement savings, and most don’t have enough to retire comfortably. The main reason: More than 60 million American employees have no retirement plan offered to them by an employer.

Such employees are eligible to set up an IRA at a qualified financial institution and receive a tax deduction. But very few get around to filling out an application and making regular contributions.

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US money market reforms: the gain isn’t worth the pain – Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

From Financial Times

Next month the new rules of the Securities and Exchange Commission (SEC) will become effective for money market funds (MM funds).

Most importantly, MM funds with any assets from institutional shareholders – e.g., corporations, pension plans and insurance companies – will no longer maintain a constant net asset value per share of $1. Instead, the net asset value of institutional MM funds will fluctuate on a daily basis – for example, 99.8 cents per share on one day, and $1.01 per share on the next.

The new SEC rules apply to institutional MM funds investing in short-term debt of cities and states – called “municipal” MM funds. The new rules also apply to institutional MM funds investing primarily in short-term debt of banks and top-rated companies – called “prime” MM funds.

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This single act would help many Americans reach retirement savings goals — Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

From MarketWatch

It’s true for everyone: despite our best intentions, we often fail to accomplish what we set out to do. When it comes to retirement investing, millions of Americans do not meet their own declared saving goals for retirement.

As a result, almost one-third of the U.S. population has no retirement savings at all,while many others will fall well short of what they will need for their Golden Years.

A solution can be found in the field of behavioral economics, which suggests ways tohelp Americans start saving. It seems that saving is a lot like dieting — small changes can help you reach your goal.

For example, many studies have shown that being automatically placed in a savings plan dramatically boosts participation by employees — even if they can opt out.

These studies show that when an automatic savings plan is introduced with an opt-out, 60% to 70% of employees remain in the plan. This may seem like a technical nuance, but there is a big difference between opting in by completing an application versus choosing not to opt out.

A plan designed to take advantage of this behavior is called an automatic IRA. In the same way that many people fail to start saving, those placed in an automatic IRA simply fail to stop saving by withdrawing from the plan. Automatic IRAs help people build their savings using the power of inertia.

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How to fix the corporate tax system – Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

From The Boston Globe

With Europe in disarray after Brexit, US lawmakers should fix the nation’s broken system for taxing foreign profits of US corporations.

In theory, foreign profits of US corporations are subject to a US tax of 35 percent. But in practice, these profits are not taxed at all by the United States — unless they are brought back to the states. Because of this rule, US multinationals have kept abroad over $2.5 trillion of their foreign profits.

This huge sum could be a growth engine for the American economy. The money could be used to build factories, modernize infrastructure, or pay dividends in the United States. Instead, it is deposited in bank accounts or invested in foreign countries.

We clearly need to reform this system, but responses in the past have not had much success.

Most Republicans argue for a territorial tax system in which foreign profits would be taxed only where they are earned. But this unfortunately won’t work. US multinationals have become very adept at shifting their earnings to tax havens, such as Bermuda, and other low-tax jurisdictions, such as Singapore.

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Reforming a corporate tax code that double taxes – Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

From Real Clear Markets

Senator Orrin Hatch, chairman of the Senate Finance Committee, is focusing on an important aspect of the agenda for corporate tax reform — — allowing U.S. corporations to receive a deduction for dividends paid to their shareholders. That deduction would eliminate double taxation of corporate profits distributed as dividends; instead, these profits would be taxed only to shareholders, not at both the shareholder and corporate levels.

Although Senator Hatch has not disclosed the details of his proposal, a corporate deduction for dividends paid has several advantages. But such a proposal would raise financial and political challenges that would have to be addressed.

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