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Most Americans not prepared for retirement

New retirement program outlined

Jazelle Hunt | 2/18/2014, 9:36 p.m.
Seventy-five million working Americans do not have a retirement plan, and half of all Americans have less than $10,000 in ...

Seventy-five million working Americans do not have a retirement plan, and half of all Americans have less than $10,000 in savings, according to a report by the Senate Health, Education, Labor and Pension (HELP) Committee.

According to a December report from the National Institute on Retirement Security, the typical retirement account-owning household of color has a balance of $23,000, which is less than half the $50,500 median balance of White households with retirement accounts.

By the HELP Committee’s estimates, the retirement income deficit is between $6.6 and $14 trillion.

Some in Washington seem to have taken notice.

In the latest State of the Union address, President Barack Obama unveiled the myRA program, which allows workers to build tax-free nest eggs from federal savings bonds. At the legislative level, Senator Tom Harkin (D-Iowa) introduced the Universal, Secure, and Adaptable (USA) Retirement Funds Act, which will create private (but federally supervised) universally accessible retirement plans.

“The retirement crisis is worse than most people realize,” Senator Harkin said in an interview with USA Today. “Most people just won’t be able to maintain their standard of living in retirement, and they will lean more and more on their families and the social safety net.”

Both systems address the retirement crisis by establishing portable, automatic payment accounts that can supplement Social Security and other retirement plans. Both systems use employers as a middleman; employers that do not already offer benefits will be required to offer the system to employees, and will link the employees to the system via automatic payroll deductions. In both systems, the employers neither access/manage their employees’ retirement funds, nor are they required to contribute to any accounts.

Despite these similarities, the systems are fundamentally different.

The USA Retirement Fund Act is the result of a two-year study of the retirement crisis by the Senate HELP Committee and its Chairman, Senator Harkin. Under this act, private entities (such as non-profits, trade organizations, financial institutions, etc.) could start their own retirement fund accounts, with approval and regulation from the Department of Labor. Approved accounts would be designated USA Retirement Funds. The private entity would choose its own independent, qualified board trustees (who would also be federally investigated and approved) to manage the funds.

The trustees would be required to disclose their fund’s performance, fees, and policies each year, publicly and directly to its members. Members would be able to petition the trustees and approve or disapprove of its actions and its compensation. Members would also have the option to move their savings to other USA Retirement Funds at the end of each year, and can also roll funds from other retirement plans into their account.

Employers offering this option would automatically enroll workers at a 6 percent deduction from their paychecks – workers have the option to increase or decrease the deduction, or opt out of the program entirely. Employers also have the option to contribute to their workers’ accounts, but are not required to do so.

All contributions are tax-deductible (up to $10,000 per year for employees, and up to $5,000 per year per employee for employers). Low-income individuals would be eligible for a refundable savers credit. The self-employed and those who work at businesses with 10 or fewer employees would be able to sign up for a USA retirement fund account as individuals.