Encouraging the Working Poor to Save for Retirement

Are you saving enough for retirement?  It can be a struggle even for those of us who do not live paycheck to paycheck.  For the working poor, the challenge must seem truly daunting.  Yet, Social Security payouts average only a little more than the poverty line, and benefits seem far more likely to decline than to increase in the future.  For those on the margins of poverty, putting money aside today may be critical to avoid a financial crisis in old age.

Should government step in to promote retirement savings by the working poor?  Vada Lindsey thinks so.  In a new paper on SSRN, she proposes reforms to the earned income tax credit that would push recipients to put a portion of their tax refunds into retirement savings.

Vada’s proposal has many intricacies, but the core features include an automatic allocation of ten percent of EITC benefits to a retirement plan, IRA, or other investment vehicle, plus a matching contribution from the government for additional savings beyond the automatic ten percent.  EITC recipients could opt out, but the default position would be in favor of savings. 

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Best of the Blogs: The Ernst & Young Case

It’s not really my area, but I’ve been especially interested this week in reading about the new civil fraud case brought by the State of New York against Ernst & Young.  The case arises from E&Y’s auditing work for Lehman Brothers, an early and important casualty of the financial crisis.  In this post, Matt Taibbi explains the basics of the Repo 105 transactions that Lehman used to hide its precarious financial position.  E&Y is now in trouble for signing off on Lehman’s questionable accounting statements.

For some helpful commentary on E&Y’s expected defense, see this post by Caleb Newquist at Going Concern.  In essence, E&Y’s position seems to be that it cannot be held liable under the New York law because it was Lehman, not E&Y, that produced the misleading financial statements and that used the statements to sell billions of dollars of securities before the collapse.  Apparently, there is no precedent under the state law for the prosecution of an accounting firm based on its role as an auditor, so the courts may have to wrestle with some difficult questions in the case.

What particularly interests me about the case is the way it echoes the prosecution of Arthur Anderson, which destroyed the venerable accounting firm as a result of its role in the Enron collapse.  

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