The United States Congress has designated this week as National Save for Retirement Week to encourage Americans to save for retirement. Research continues to shows that the majority of Americans aren't doing enough to prepare for retirement. A 2009 report from the Employee Benefits Research Institute found that 53% of American workers have less than $25,000 in total savings and investments.
For most Americans, the congressional cheerleading is backed up by a range of substantive policies that provide incentives for savings. But for members of same-sex couples, the Congressional proclamation will ring hollow. Federal policies penalize gay and lesbians for retirement savings and greatly hamper their ability to provide for their families after they die.
In two new studies released this month by UCLA School of Law's Williams Institute, researchers have found that when compared to different-sex married couples, gay and lesbian couples have less retirement income and have less ability to provide for their families after they die. For example, female same-sex couples have 20% less income during retirement than different-sex married couples, and they rely more heavily on social security benefits. Male same-sex couples are more likely to continue working during retirement and rely on wage income as a large share of their income during retirement.
One of the main incentives for retirement savings is to provide for family members after death. Federal policies make this more difficult for same-sex couples. For example take two hypothetical couples: Joe and Marla and Jared and Mark. Both couples have been together for twenty years and have raised children. Both couples are among the half of Americans whose jobs sponsor a defined contribution retirement plan, like a 401k. Unexpectedly, Marla and Mark die. In the case of Joe and Marla, the balance of Marla's 401k can be transferred to Joe without any tax bill. Joe can then wait until age 70½ to begin taking money from this retirement account.
Jared can still rollover the balance of Mark's 401k into an IRA. But, because Jared isn't recognized as Mark's legal spouse, Jared will lose nearly half of any amount over $3.5 million due to the estate tax. Plus, Jared will be forced to take money out of this account immediately, even if he doesn't need that money now -and the money will be taxed more now as opposed to when he's older and less likely to have income from other sources. Jared doesn't have the option of waiting until he is 70½ like Joe does.
Plus, if Mark's estate, such as the value of his house, retirement plans, stocks, cars, or artwork, is worth more than $3.5 million, Jared will have to pay the estate tax on that value. In 2009, it is estimated that 73 same-sex couples will be in just this situation. And they will, on average, have a tax bill of $3.3 million. Meanwhile, all of Marla's assets can be transferred to Joe without any taxes.
Much of this inequality in retirement assets and estate taxes is due to the fact that same-sex couples aren't recognized as married couples by the federal government. This is the case even if they are legally married in Massachusetts, Connecticut, or Iowa. The repeal of DOMA would mean that for legally married same-sex couples, this unfair taxation on retirement assets would end. Even prior to the repeal of DOMA however, Congress could address these estate tax and retirement plan inequalities similar to the way it allowed same-sex spouses to rollover, albeit with strings attached, the balance of their dead spouse's 401ks in 2006.
As part of National Save for Retirement Week, Congress should turn its attention to the ways in which committed, same-sex couples are treated unfairly and are disadvantaged when it comes to the ability to prepare for retirement and protect their families. For these families, federal proclamations should be backed by federal policy.