January 30, 2013 (PLANSPONSOR.com) – A recent study, which found tax incentives for retirement savings in Denmark had virtually no impact on increasing total savings, may not be relevant to the United States.
According to a new report by the Employee Benefit Research Institute (EBRI), the two retirement systems have some similarities but also major differences—mainly that, unlike in the United States, in Denmark the availability of employment-based, tax-deferred retirement plans is not tied to the tax-deferred status of the accounts. The study of Danish workers examined only the impact that changes in tax incentives for work place retirement plans might have on worker savings behaviors, but did not address how employers might react to changes in retirement savings tax incentives. The EBRI report notes recent surveys have found many American private-sector plan sponsors have expressed a desire to offer no plans at all in the absence of tax incentives for workers. If this happened, low-wage workers—who are generally less prepared for retirement—would suffer on several counts, said Sudipto Banerjee, EBRI research associate and co-author of the report.
“The Danish study provided insight into the savings behavior of Danes, conditioned by the culture and influences of public policies and programs of Denmark,” Banerjee said. “But the ‘success’ of workplace retirement plans in the United States depends on the behavior of two parties: workers who voluntarily elect to defer compensation and employers that sponsor and, in many cases, contribute to them.”