Democrats Focus on Retirement Security

The Fiscal Times

Declaring that a lack of retirement savings is “one of the darkest clouds hanging over the future economy of America,” Sen. Tom Harkin (D-Iowa) on Thursday proposed legislation that would require all companies in the country with 10 or more employees to offer workers access to retirement accounts designed to create a steady stream of income during their retirement years.

Harkin, who chairs the Senate Committee on Health, Education, Labor and Pensions introduced his bill just two days after President Obama, in his State of the Union address, announced the creation of a new type of Individual Retirement Account, called a MyRA, targeted at low-income workers.

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Harkin cast his bill as a means of restoring the traditional “three-legged stool” of retirement planning, which included Social Security, personal savings and a pension. As pension programs have all but disappeared from the U.S. workplace, and workers today have saved an estimated $6 trillion less than they need for a secure retirement, he said creating a new way for workers to prepare for retirement is crucial, both for workers themselves and the U.S. economy.

“This is the most underreported crisis facing America,” Harkin said, pointing out that as the population ages and people leave the workforce, it’s important for the U.S. economy that they continue to have money to spend. Otherwise, he said, job creation and economic growth will suffer.

Called the USA Retirement Funds Act, Harkin’s bill would create a private-sector driven program into which any American could contribute. Managed by private fund managers and overseen by a board of trustees appointed by the Department of Labor, the money would grow until a worker reached retirement, at which time it would provide a stream of monthly payments – directly tied to the employee’s total level of contributions – for the remainder of the worker’s life.

The bill, he said, would require very little from employers, as contributions would be managed through the existing tax withholding system. Employers would have no fiduciary responsibility for the retirement funds transferred into the program. Companies that already offer a retirement program that guarantees a stream of income would not be required to offer employees access to the accounts established by the bill. However, any American, including those not employed by a company covered by the act, would be eligible to participate voluntarily.

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In a change from most employment-based retirement programs, the USA Retirement Funds Act would require workers to “opt out” if they do not want to participate. Under the bill, six percent of workers’ gross pay would be funneled into the accounts unless the worker makes an affirmative request that the amount be different, or elects not to participate at all. There would be no penalty for non-participation. 

Coming just days after the president announced the creation of the MyRA program in the State of the Union Address, the announcement suggests that Democrats are focusing on easing the anxiety of voters concerned about a secure retirement as they head into the 2014 election season. 

While Harkin’s proposal would potentially affect all workers, his target demographic is really middle and lower-income workers who have little or no access to retirement savings vehicles through their jobs. The president’s MyRA program, is more tightly focused on low-income savers.

The proposal would allow savers, primarily those without enough money to afford to open a privately-managed Individual Retirement Account, to invest in government bonds through a payroll deduction program. Ideally, participants would save up enough to afford the buy-in costs for a privately managed account. Savers who accumulated $15,000 or more, or whose accounts were active for 30 years or more, would be required to switch to a private IRA. 

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Organizations that promote retirement security, which were supportive of the MyRA introduction earlier this week, also praised Harkin’s proposal. 

The bill, “represents a significant leap forward to improve the nation’s retirement security for generations,” said Diane Oakley, executive director of the National Institute on Retirement Security. “The current retirement infrastructure does not work for nearly half of the workforce, which has no access to a retirement plan through their employer….This new proposal could go a long way to put Americans on a solid financial track for their future.”

Karen Friedman, executive vice president and policy director for the Pension Rights Center, said the bill “will expand pension coverage for millions of workers.” However, she added, “The bill could be strengthened by requiring employers to contribute to these funds.”

Follow Rob Garver on Twitter @rrgarver 

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