CFK reports from: The Brookings Institution
Event: Release of study on Protecting Low-Income Families' Savings; panel discussion
Organized by: The Retirement Security Project
Where/When: Washington, D.C., June 21, 2005

Report by Ruby Moore

Changing methods of saving for retirement, combined with outdated government regulations on counting family assets, have increased the risk that low- and moderate-income families who attempt to save for later years will lose their eligibility for government assistance programs such as food stamps, Supplemental Security Income, Medicaid and cash public assistance.

According to the staff at the Center on Budget and Policy Priorities, the government programs often count funds that are placed in accounts, like 401(k)s or IRAs, toward a families’ asset limit and that these funds push some families over the limit, making them ineligible to receive health care coverage and other basic supports for their families.

Peter Orszag, head of the Retirement Security Project, noted that there is a growing bipartisan interest in encouraging low-income families to save more for retirement, in part because the federal government benefits later on from having fewer retirees completely reliant on federally funded programs. But under current laws, those that choose to save now risk losing their eligibility for assistance, and can be forced to draw on funds saved in 401 (k) or IRA accounts, often paying high penalties for early withdrawal.

Families that are in the bottom fifth of income distribution and that have chosen to begin saving have an average of only $4,500 saved, but in many programs a person becomes ineligible for benefits if they own more than $2,000 in assets. According to the study, it is important for legislators to move soon to increase the $2,000 limit, which has not been adjusted for inflation in 30 years.

Audrey Rowe, president of AR Consulting, suggested that 401(k) and IRA savings should not be taken into account when measuring assets for eligibility for federal assistance. Rowe said that this would encourage more low-income families to save for the future.

“Our hope with this study is that there will soon begin to be interest in this on [Capitol Hill],” said Bob Greenstein, executive director or the Center on Budget and Policy Priorities. “At this time there are no political allies or champions for this cause on the hill, and no bills have been introduced to support our findings.”

The report and executive summary are both available for downloading at http://www.retirementsecurityproject.org.