Debate: Should 401(k)s Offer a Social Security 'Bridge' Option?
It’s not uncommon for Americans to begin claiming Social Security benefits early, often before they’ve reached full retirement age. Of course, claiming Social Security early means that the taxpayer receives a reduced benefit check for life (rather than the higher monthly benefit that would have been paid had the client waited until age 70 to begin claiming).
Some have proposed that employers should be required to provide a “bridge” strategy that would use 401(k) assets as a substitute for claiming Social Security benefits early. The Social Security bridge option would pay 401(k) participants a portion of their account balance that’s roughly equivalent to what they would receive in Social Security benefits.
We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about requiring 401(k) plan sponsors to offer a so-called Social Security bridge option.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Bloink
Byrnes
Their Reasons:
Bloink: This strategy would allow participants to delay claiming Social Security benefits so that they can claim a higher future benefit. Of course, 401(k) participants would have a hard time implementing this type of strategy on their own, given the complicated calculations that would be involved — so requiring employers to take the lead in offering the option makes perfect sense.
Byrnes: Allocating a 401(k) participant’s assets toward a “bridge” option would be an extremely complex undertaking — and that’s exactly why we shouldn’t require employers to take it on. This type of option might encourage some participants to delay claiming Social Security, sure.
However, we have to consider the fact that many participants would start claiming Social Security before full retirement age anyway — and could very well take the employer-sponsored opportunity as well, which would diminish their 401(k) assets early even while receiving that reduced benefit.
