Each year the State of the Union address allows the President to have a conversation with the American people while outlining his priorities for the coming year. In this year’s speech, President Obama not only acknowledged that millions of Americans are facing a retirement crisis, he announced the creation of a new savings plan for low-income workers, “myRA.”
Short for “My Retirement Account,” the myRA is a starter retirement plan designed for low-income workers whose employers do not already offer a pension or 401(k)-type plan. MyRAs will be invested in Treasury bonds, which means that workers’ small savings won’t be eaten up by the typical fees charged by private investment institutions. The plans are guaranteed by the federal government, which means that savers won’t lose their contributions. Like 401(k) plans, workers will contribute to myRAs through automatic payroll deduction. Once its account balance reaches $15,000 or 30 years have passed (whichever comes first), a myRA will be converted to a Roth Individual Retirement Account.
The myRA is an important first step in offering an easy, secure way for lower-income workers to save for retirement, but it only solves a small piece of the retirement puzzle. Two days after the President announced the myRA, legislation was introduced into Congress that provides a more comprehensive solution to the retirement problem.
Senator Tom Harkin (D-Iowa), chairman of the Senate Health, Education, Labor, and Pensions Committee, introduced S. 1979, the USA Retirement Funds Act of 2014, into Congress. The Senator’s bill would create a new system of privately-run retirement funds that embrace many of the best features of traditional pension plans. USA Retirement Funds are pooled and professionally managed, they lock the money in until retirement, and they pay out a stream of monthly payments that cannot be outlived. Because the assets in the funds would be pooled the investment risk would be shared by all participating workers and retirees, rather than borne by individuals as in the typical 401(k) plan.
An important element of traditional pensions missing from Senator Harkin’s bill is a required contribution by employers, and many groups will be calling for this feature to be added to the bill. Nevertheless, USA Retirement Funds represent an exciting new concept to address the nation’s retirement income crisis that would add new life and vitality to our traditional pension system.
Also last week, a bipartisan pair of Senators – Susan Collins (R-Maine) and Bill Nelson (D-Florida) – introduced S. 1970, the Retirement Security Act of 2014, which focuses on the challenges faced by small businesses, which typically believe they cannot afford to offer retirement savings plans to their workers. The bill relaxes some of the rules for multiple employer 401(k) plans, making it easier for small businesses to band together and take advantage of cost efficiencies that come with larger size.
The announcement of these initiatives moves the issue of retirement security to the front and center of debate in Washington, D.C., and marks the launch of an era of new ideas to help American workers save for their future. The Pension Rights Center is excited to be at the forefront of this transformative time in retirement security.