Retirement plans for the self-employed in the US: Recent developments

Abstract

The US retirement security system is described as a three-legged stool comprised of social security, a workplace retirement system and individual saving. Over the past sixty years, the US system has evolved from relying primarily on social security and private saving as mechanisms for providing retirement security, to a system that relies increasingly on employment sponsored plans. However, retirement security programmes for the self-employed have developed at a substantially slower rate than for other sectors of the employed labour force.

As a prelude to examining recent developments in retirement plans for the self-employed in the US, David Richardson and R Vaidyanathan provide an overview of the history of the development of public and private retirement savings opportunities for self-employed individuals. Administrative burdens, concerns over tax compliance and over the distribution of retirement subsidies are put forth as some of the reasons for the slower pace of development of retirement security programmes for the self-employed. They show how, over time, many of these problems have been overcome. While the self-employed system is still viewed as administratively burdensome, it provides a degree of flexibility and a level of retirement subsidies that are not generally available to the employed labour force.

Richardson and Vaidyanathan also look at US labour force demographics, focusing on the self-employed share and GNP; the regulatory aspects of retirement plans for the self-employed; and the history and structure of social security and federal tax subsidies for the self-employed retirement programmes. In dealing with some recent developments in the structure of self-employed plans they focus on the issues of portability, tax-sheltering, and the potential for enhancing retirement security.