(The writer is a Reuters columnist. The opinions expressed are his own.)
CHICAGO, March 17 (Reuters) - Make a list of the
most toxic words in American politics, and "employer mandate" certainly
would be in the top 10. Requiring employers to provide health insurance
to workers is one of the most controversial features of the Affordable
Care Act - along with the requirement that individuals buy insurance.
But
a mandatory retirement savings program might just have a shot at
success in Washington as part of a broader bipartisan attempt to address
the looming retirement security crisis. The idea is getting a push from
a politically unlikely duo: labor economist Teresa Ghilarducci and Tony
James, president of Blackstone Group LP, the global asset management
firm.
What they have in common is a mutual belief that the 401(k)
system is not up to the job of building a secure retirement for average
Americans. Indeed, just 23 percent of workers age 45 and higher have
saved more than $250,000, according to the Employee Benefit Research
Institute. Meanwhile, Social Security replaces only about 40 percent of
pre-retirement income on average, according to the Center for Retirement
Research at Boston College - far short of the 70 to 80 percent most
households will need to retire with security.
"People are coming
into old age without sufficient money to maintain their lifestyles, and
many of them will be poor or near poor when they were once middle
class," Ghilarducci says.
HOW IT WOULD WORK
Ghilarducci
has long advocated replacing 401(k)s with a federally managed
retirement savings plan called Guaranteed Retirement Accounts (GRAs),
and now she has teamed up with James to push the idea. The two recently
published a white paper outlining a joint version of Ghilarducci's GRA
idea. Ghilarducci also is serving on a commission on retirement security
and personal saving organized by the Bipartisan Policy Center (BPC),
which will report its findings in May - and is expected to reflect at
least some features of the GRA.
The 401(k), a tax-deferred
workplace-based vehicle for saving and investing for retirement,
requires individuals to make their own investment decisions. Some 401(k)
plans have high fees - and they are not designed to provide a
guaranteed lifelong income stream.
Ghilarducci and James propose
that every worker would own and control a GRA account, initially
contributing 1.5 percent of income, which would be matched by employers.
Their plan calls for a mandatory system with universal participation,
but it would be cost-neutral for workers below median income level (a
family earning $45,000), because it would be offset by a tax credit.
Account
holders would choose from a list of professional money managers
competing for their business in a federally run exchange. The aim is to
let managers compete for business based on returns and their ability to
keep costs down. At retirement, savings would be converted automatically
to an annuity that guarantees a yearly payout for life. This would be
accomplished through a nationwide retirement pool that shares actuarial
risk and administered by the Social Security Administration.
Ghilarducci
and James are not the first to propose a mandatory retirement saving
system. The Obama administration has long promoted auto-IRAs, which
would be offered to all workers who do not already have a 401(k). It
took a step in that direction last year with the introduction of the
MyRa, a federally sponsored voluntary starter retirement account
featuring payroll deduction, no fees, conservative investments and a
guaranteed rate of return. And a number of states are pushing to create
their own mandatory plans.
Ghilarducci and James also point to the
experience of other major industrialized countries - Britain, Australia
and New Zealand among them - that have moved to universal, mandatory
savings plans.
LOOMING DEBATE OVER SOCIAL SECURITY
Despite
the political toxicity of mandates, their plan could gain traction as
part of a bigger legislative deal focused on both retirement saving and
Social Security reforms.
Congress will have to address Social
Security sometime soon. The program's two key trust funds - for
retirement and disability programs - are on track to be exhausted in
2034, according to the Social Security trustees, absent an injection of
new revenue, benefit cuts or some combination of the two.
Progressives
hope not only to restore the trust fund's health, but to expand Social
Security benefits as part of the reform debate. They hope to inject new
revenue into the system by lifting or eliminating the cap on wages
subject to the payroll tax and gradually increasing payroll tax rates.
Conservatives will push for savings via higher retirement ages and
possibly means-testing of benefits.
The BPC report will provide a useful proxy on how the debate could shape up in Congress.
The
commission will reflect at least some of the Ghilarducci-James
approach, focusing on improved access to workplace retirement accounts,
plan design and automatic enrollment. The Social Security
recommendations are likely to include higher revenue and benefit
improvements for widows, spouses and low-income beneficiaries. But
higher retirement ages also have been part of the group's debate,
according to Shai Akabas, BPC's associate director of economic policy.
"Many
groups have looked at Social Security or 401(k)s or tax preferences,"
he says. "We are looking at how the pieces interact as a system."
(Editing by Matthew Lewis)
Culled from Reuters
