Updates

Universally Available Retirement Plan Option

07/27/2012


July 27, 2012 – Sen. Tom Harkin (D-IA), Chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee, has issued a report in which he proposes a new retirement savings program intended to address the growing retirement savings shortfall among American workers.  Sen. Harkin’s proposal for USA Retirement Funds is based in part on Senate hearings on the U.S. retirement system held during the past two years. The proposal is still in the concept stage, and has not yet been made available in bill form.

The senator cited limited or nonexistent personal savings accumulations and uneven access to employer-sponsored retirement plans—particularly defined benefit pension plans—as factors contributing to a growing number of Americans facing the prospect of post-retirement poverty.  Sen. Harkin advocates a new retirement savings option, as well as changes to shore up the Social Security system. Following are some of the proposed features.

  • Employees without access to an employer plan with automatic enrollment and minimum employer contributions, or a defined benefit plan, would be required to be automatically enrolled in a USA Retirement Fund, a privately-run, portable, hybrid pension plan.
  • The proposal envisions multiple, competitive, licensed, and regulated USA Retirement Funds.
  • Employees would have the option of increasing their automatic withholding level, decreasing it, or opting-out.
  • Payout would be made over the course of the employee’s retirement, with survivor benefits.
  • Contributions to USA Retirement Funds would be routed through existing workplace tax withholding systems.
  • Low-wage workers could be eligible for refundable credits that would be contributed to a USA Retirement Fund.
  • Employers would receive a credit to help offset the cost of changes to payroll withholding systems.
  • Professional asset managers would control and manage the investing of pooled USA Retirement Funds, overseen by a board of trustees.
  • Employers would be relieved of fiduciary responsibility for selecting, administering and managing investments, and for investment performance.
  • Social Security system changes would include phasing out the cap on wages subject to the Social Security payroll tax, and replacing the current cost-of-living-adjustment formula with the Consumer Price Index for the elderly, which reflects increased health care and other age-weighted expenses.

A legislative concept this complex and novel is unlikely to make significant progress this late in a general election year, and certain elements of Sen. Harkin’s proposal are likely to be controversial.  We will, nevertheless, continue to track progress of, and/or reaction to, this proposal.


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