While retirement policy in general did not rise to the top
of Congress’s to-do list in 2014, employer-sponsored defined contribution
retirement plans were able to maintain all of the existing tax provisions and
infrastructure that have led to successful saving for millions of Americans. The
Senate Finance Committee elevated the discussion with a national hearing on
retirement savings policy in 2014. And Senator Orrin Hatch, now chair of the
Senate Finance Committee, affirmed his belief in the preservation of
retirement savings incentives.
Providing an auto-IRA (individual retirement account)
through payroll deduction could be one solution for workers without access to a
401(k). Past Congressional proposals have generally included requiring
companies with 10 or more employees to offer a no-frills payroll deduction plan
— with no employer match. But opposition to any “mandate” requiring employers
to offer such plans has so far stymied their chances.
What is clear is that absent some form of payroll deduction,
most workers are highly unlikely to start saving enough to make a positive
difference in retirement readiness. The more automatic design elements that can
be worked into a plan, the more likely workers are to succeed. The need is
real, and this Congress should act on it.
White House proposes
myRA (My Retirement Account)
The White House also proposed a similar vehicle early last year, and an initial
pilot program for myRA savings accounts was launched in December
2014. The program allows workers who don’t have a 401(k) to use payroll
deduction to save for retirement by purchasing Treasury bonds in a Roth IRA
account. In December, the Treasury Department created the new savings bonds for
Investors can open an account with $25 and make
contributions as low as $5. The accounts are limited to $15,000, at which point
the savings would shift to a private-sector Roth IRA. The White House notes
myRA is considered a “starter” retirement savings account. By itself, however,
myRA is too modest a proposal to make much of a dent in the nation’s overall
States aren’t waiting
While no nearly universal federal workplace savings program is yet available,
many states are moving to address the access gap. In 2012, California
approved a state-run retirement savings program using payroll deduction. The
legislation created a board charged with conducting a market analysis that must
be completed before the program is implemented. There are an estimated 6.3
million workers in the state without access to workplace savings.
Since then, more than a dozen states have considered or
begun exploring the possibility of introducing a savings vehicle for
workers without a 401(k). Last month, Illinois adopted a state plan
for private-sector workers who do not have access to workplace savings. Beginning
in 2017, the Secure Choice Savings Program will require employers
with 25 or more employees without a workplace retirement plan to automatically
enroll workers in the state’s program, allowing them to invest in a Roth IRA.
Workers can opt out. Still, creating retirement savings programs, with
differing structures and mandates, can be challenging.
Outlook for 2015
With such a variety of proposals for extending workplace savings access, 2015
could be a year of real progress toward greater retirement readiness.
Preferably, Congress will see the way the wind is blowing at the state level
and act on broad, national legislation to extend workplace savings access. That
would be far better than letting us grow a complex, multi-state patchwork of
savings initiatives. The need is real and so is the opportunity to meet it this
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