Sen. Tom Harkin, D-Iowa, unveiled new legislation this week
that would help tackle the retirement crisis in America and shore up the
private pension system. Industry reaction to the bill was mixed; some cheered
while others thought it too complex.
Called the Universal, Secure and Adaptable (USA) Retirement
Funds Act of 2014, the legislation, if passed, would give the 75 million
individuals in the country who don’t have access to a retirement plan at work a
way to earn a safe, portable and secure pension benefit for life.
His legislation would create a new type of privately run
retirement plan that combines the advantages of traditional pensions, including
lifetime income benefits and pooled, professional management, with the
portability and ease for employers of a 401(k).
“USA Retirement Funds would be 21st century retirement
plans, run entirely by the private sector, that drastically reduce costs
through professional management and risk sharing. Simply put, giving people without access to a
quality employer-provided plan the opportunity to earn a retirement benefit
would help ensure every American enjoys their golden years with the dignity and
financial independence they deserve,” Harkin said in a statement.
The National Conference on Public Employee Retirement
Systems, the largest trade association for public sector pension funds, said
that it fully supports the Harkin legislation.
“We applaud Sen. Harkin for focusing national attention on
America’s retirement security crisis and the vital role defined pension
benefits must play if we are to effectively address that crisis. His bold
proposal for establishing USA Retirement Funds would help restore defined
benefit pensions to the private sector, which is facing a retirement savings
deficit in the trillions of dollars,” NCPERS said in a statement. “His
legislation would also make it far easier for private sector employers –
especially small businesses – to offer retirement savings plans for their
workers, since it would eliminate the investment risks and substantial
administrative burdens involved with establishing those plans.
Others, however, like The Online 401(k), had problems with
the bill, believing its approach wasn't simple enough.
Harkin’s bill is “one of the most complicated approaches
I’ve ever seen,” said Chad Parks, founder and CEO of The Online 401(k). “The
way they are approaching this is one of the more complicated. The point was to
get more people to save, to increase savings rates. Basically they were trying
to combine a defined benefit with a 401(k), with pooled investment risk, with
annuitization pension-type payouts and with deferral limits relative with time
to retirement.”
Parks pointed out that the investments would be pooled, not
individually directed. They would go into a professionally managed portfolio
and the cash flow in and out would be managed like a DB plan. They also would
need to figure out who will draw out the money when and would have to calculate
that on a plan basis.
Making it like a multiemployer plan adds another layer of
complication, he said.
The legislation includes:
- Universal coverage: USA Retirement Funds would be available to everyone, including the self-employed and those who don’t have access to a retirement plan at work.
- Automatic enrollment: Employees would be auto enrolled at a deferral rate of 6 percent per year, but they could choose to raise, lower or stop their contributions at any time.
- Secure lifetime income: Benefits would be paid monthly for life and participants would be shielded from market volatility and other risks.
- Lower costs: Pooled assets, professional management and risk sharing will reduce the cost of retirement by up to 50 percent.
- Portability: People would be able to take their benefit with them as they change employers.
- Simple and easy for businesses: Small businesses can easily participate and would not have to take on risk or undue administrative burden.
The plan would utilize existing payroll withholding systems
so it wouldn’t be an administrative burden on businesses. Self-employed people
could set up an account through the program and make contributions as they
would to an IRA.
USA Retirement Funds would be privately run retirement plans
that are approved and overseen by the Department of Labor. Each fund would be
managed and administered by a board of qualified trustees who would represent
the interests of employees, retirees and employers. They would be fiduciaries
and thus required to act prudently and in the best interests of plan
participants and beneficiaries.
The legislation follows on the heels of President Obama’s
State of the Union announcement that he has directed the Treasury department to
form a new type of retirement plan, called the MyRA, that would be accessible
to all Americans. The program also would be accessible through payroll
deductions but would invest in secure government bonds. When the accounts reach
$15,000, they will be rolled into Roth IRA accounts for the holders.
Source: Benefits
Pro
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