President Barack Obama walks along the Colonnade at the White House, hours before giving his State of the Union Address before a joint session of Congress. (AP Photo/Carolyn Kaster)
On January 29, 2014, John Wasik writes in Forbes:
In his State of the Union address Tuesday night, President Obama indirectly admitted what U.S. employees have long known: Retirement security stinks in this country and 401(k)s are not the answer.
Retirement accounts should be universally available — you shouldn’t have to depend upon an employer to offer them. That’s why the president is making these proposals in addition to raising the minimum wage to $10.10 an hour:
* “myRA” ”Our retirement system should help these potential savers and encourage them to begin building their retirement security,” the White House said in a statement prior to the speech. “The President is using his executive authority to create “myRA” (my Retirement Account) – a new simple, safe and affordable “starter” retirement savings account that will be available through employers and help millions of Americans save for retirement. This savings account would be offered through a familiar Roth IRA Account and, like savings bonds, would be backed by the U.S. government.”
In his State of the Union speech, the president pledged to “Offer every American access to an automatic IRA on their job.”
The prior White House statement expanded on the rationale:
* Removing Retirement Tax Breaks for the Wealthiest While Improving Them for the Middle Class. “About half of all American workers do not have access to workplace retirement savings plan. Furthermore, our tax incentives mostly benefit high-income individuals already well-positioned for retirement, allowing them to reap tens of thousands of dollars more in tax breaks than middle-class families. The President’s budget will propose to establish automatic enrollment in IRAs (or “auto-IRAs”) for employees without access to a workplace savings plan, in keeping with a plan that he has proposed in every budget since he took office.”
Why Retirement Security is Sagging
Economic inequality is partially perpetuated by this country’s fractured retirement security policy.
Those who can afford to save do — and have a bevy of tax breaks and programs tailored for them. But most workers aren’t that fortunate. Here’s how bad the situation has become, according to the Center for American Progress:
* About half of all workers do not have a retirement plan at work, and those who do have a 401(k) have only accumulated enough money to give
them a monthly retirement payment of about $575 on average.* Ernst & Young estimated that 59 percent of new middle-class retirees will outlive their savings.
* Traditional defined-benefit pensions—a staple of good, middle-class jobs a generation ago—have become a rarity.
* The tax code also reinforces inequality in retirement; its upside-down-pyramid shape offers larger incentives for those at the top to save—even though they are already more likely to do so—and relatively little help for those at the bottom.
* Personal contributions to qualified retirement accounts receive a tax deduction, meaning that those in the top tax bracket, for example, receive 39.6 cents back for every dollar they save, while those in the 10 percent tax bracket receive 10 cents back for every dollar they save.
Old Proposal Gets New Life?
What the president proposed, however, is not entirely new.
It’s a retread of ideas that have been bouncing around Washington for years. These proposals are unlikely to get traction in this Congress, although anything can happen as we head into the mid-term elections later this year.
Here’s how to tackle this problem, as outlined by the Center for American Progress:
“The Secure, Accessible, Flexible, and Efficient, or SAFE, Retirement Plan would automatically enroll workers in a collective defined-contribution plan, offer low fees and professional fund management, collectively pool participants’ assets, and turn these assets into lifetime payments in retirement at a low cost. Additionally, a Universal Savings Credit, which would replace all existing deductions with a new flat tax credit based on their contributions to a savings account, would flip the upside-down pyramid of tax benefits to better help low- and middle-income families save for retirement.”
The problem isn’t that Americans don’t have enough ways to save for retirement — they have too many. Look at the alphabet soup of plans from 401(k)s, 403(b)s, 457s to Roth IRAs. Why not consolidate them and make the tax breaks uniform through credits? Make a universal plan with low fees accessible to everyone — regardless of where they work. It’s not only a way to address inequality, it will improve retirement security for everyone.
http://www.latimes.com/opinion/op-ed/la-oe-scorse-myra-ira-20141016-story.html
