The retirement services industry knows its business. It designs, markets and administers retirement savings plans for a fee. In designing and marketing these plans the industry ignores the economic, social and cultural issues that make them inappropriate for low wage workers. This is especially true of 401(k) style plans because they require consistent and increasing contributions that are subject to loss.

Asking low wage workers to risk losing money to save for retirement is not only stupid, it's cruel.

And it's not just low wages that make 401(k) plans inappropriate for poor workers, many of these workers encounter social and cultural issues that make voluntary saving difficult. They often have to provide financial help to family members, while meeting their own day-to-day needs. As author Mel Jones points out in her excellent article in washingtonmonthly.com, The Second Racial Wealth Gap, this is especially true for black and Hispanic workers.

A 401(k) Plan Alternative For Low Wage Workers

The new state and federal based Individual Retirement Account (IRA) programs are an option for workers whose primary obstacles to saving are accessibility, ease of use and risk aversion. However, these plans don't address the issues of not having enough to save and dealing with family financial obligations. These workers need a government program that deducts money from their paychecks and diverts it to a guaranteed retirement income plan. A plan that also offers advantageous tax benefits that wealthier workers enjoy from participating in 401(k) style plans.

The great thing about coming up with alternatives to the 401(k) plan is that we already have models in the form of Social Security (SS) and the Retirement Savings Contribution Credit (SAVER's) credit. So instead of state run IRAs, we could have state run defined contribution plans modeled after Social Security, not traditional pensions. We can call them, State Retirement Plans For Low Wage Workers or SERPLOWs.

Funding SERPLOWs:

• Make all workplace retirement contributions subject to state taxation
• Cap the annual amount of federal pretax retirement contributions at $6,000, subject to indexing
• Create a financial emergencies tax to be paid by big banks and investment firms (like the Affordable Care Act’s medical device tax). These institutions make so much money, including from 401(k) plans, that they can afford to pay more taxes
• Eliminate the salary cap on the employer portion of the Social Security tax
• Increase the employee portion of the Social Security tax by 1%
• Subject capital gains to the Social Security tax
• Change the Social Security tax benefit calculation from an average high 35 years of employment to 25 years
• Allow employers to make voluntary contributions to SERPLOW plans for eligible employees
• Credit the SAVER's credit to the worker's SERPLOW account

Tags: 401k plans, Social Security