Sen. Harkin.
On January 31, 2014, Paula Aven Gladych writes on Benefits Pro:
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.
This is yet another attempt to address the fact that Americans are not saving enough for retirement. But the proposals fall far shot by “trillions” of dollars.
Senator Harkin’s proposal has all the downsides of the “MyRA” and nothing to recommend it. It claims it offers lifetime income security funded out of current savings, meaning further reductions in consumption out of already inadequate incomes. It also aggregates everything into a “private sector” institution that is custom designed to be “too big too fail.”
As with President Obama’s MyRA proposal, Senator Harkin’s proposed Universal, Secure and Adaptable (USA) Retirement Funds Act of 2014 will not succeed in providing any real, substantial retirement security for the majority of Americans whose jobs do not earn more than substance week to week and month to month wages. Both plans are designed to encourage Americans to save for retirement and require personal savings and denial of consumption. This is unrealistic given that the Americans with the least opportunity must reduce what is inadequate consumption income in order to accumulate savings for retirement, which for most Americans will be inadequate.
Does anyone really believe that the interest rate to be paid under these programs will be sufficient and able to avert the decline in the value of the money as the government continues to flood the economy with increasingly non-asset-based debt?
Both proposals rely on the requirement to reduce consumption in the economy at a time when what is needed is expansion of the economy supported by increased consumption.
As my colleague Michael Greaney at the Center for Economic and Social Justice (www.cesj.org) states, “under the prevailing Keynesian paradigm, of course, ‘saving’ is always defined as the excess of income over consumption. If you want to save, then, the iron assumption of Keynesian economics is that you must consume less.”
The American consumer is being put into an impossible situation of being asked to consume more to drive the economy and reduce saving, and at the same time are being told they must reduce consumption dramatically in order to accumulate sufficient savings for retirement.
Of course, the whole problem would go away if we financed both retirement and wealth-creating, income-producing physical productive capital needs out of future savings, thereby increasing the capacity to consume and support the economy while simultaneously building financial security for every American citizen.
A far better and productive approach would be to create a new way for working and non-working Americans to start their own retirement savings: MyCHA. CHA stands for Capital Homestead Account. It would be a super-IRA or asset tax shelter for citizens. The Treasury should start creating an asset-backed currency that will enable every child, woman and man to establish a CHA at their local bank to acquire a growing dividend-bearing stock portfolio comprised of newly-issued stock representative of viable American growth corporations to supplement their incomes from work and all other sources of income.
We can create new asset-backed money for investment through the existing but dormant Section 13(2) rediscount mechanism of each of the 12 regional Federal Reserve banks that would be backed by “future savings” (that is, future profits from higher levels of marketable goods, products, and services).
President Obama, Senator Harkin and other elected representative should advocate for the passage of the The Capital Homestead Act, which will process an equal allocation of productive credit to every citizen exclusively for purchasing full-dividend payout shares in companies needing funds for growing the economy and private sector jobs for local, national and global markets. The new issued shares would be purchased on interest-free credit wholly backed by projected “future savings” in the form of new productive capital assets as well as the future marketable goods, products and services produced by the newly added technology, renewable energy systems, plant, rentable space and infrastructure added to the economy. There will be no prerequisite requirement to qualify for an annual set capital credit loan other than American citizenship.
We need to encourage the insurance industry to expand their product lines to market Capital Credit Insurance to cover the risk of default for banks making loans to Capital Homesteaders under the proposed Capital Homestead Act. Under the provisions of the Act, risk of default on each stock acquisition loan would be covered by private sector capital credit risk insurance and reinsurance issued by a new government agency (ala the Federal Housing Administration concept), but would not require citizens to reduce their funds for consumption to purchase shares.
The end result is that ALL American citizens would become empowered as owners to meet their own consumption needs and government would become more dependent on economically independent citizens, thus reversing our country’s trend where all citizens are becoming more dependent for their economic well-being on the “state,” our only legitimate social monopoly.
The CHA would function as a savings and income account that effectively would build a nest egg over time, using interest-free, insured capital credit loans. A CHA would be offered to EVERY American, whether employed or not. Of course, those employed may also have additional opportunities to acquire personal ownership in their companies using an Employee Stock Ownership Plan (ESOP) trust financial mechanism.
