The Case for Using Subsidies for Retirement Plans to Fix Social Security

Tax expenditures for employer-sponsored retirement plans are expensive—costing about $185 billion in 2020. However, this subsidy fails to meet its policy goals of increasing national savings or expanding plan coverage, and the tax preferences increasingly benefit high earners. Therefore, the case is strong for eliminating this expenditure entirely or limiting contributions or accumulations in tax-favored plans. While reducing this subsidy might somewhat lower interest in offering work-based savings plans, alternative arrangements could ensure that all workers have an organized way to save for retirement. And reallocating the proceeds from eliminating the tax expenditures to Social Security would bolster the backbone of the nation's retirement system.