Sen. Harkin pushes privately run retirement plan

Plan would supplement pensions and 401(k)s, and would aim to provide lifetime income

Jan 30, 2014 @ 2:05 pm

By Darla Mercado

What was old was new again in the Senate Thursday, when Sen. Tom Harkin (D-Iowa) introduced a bill to establish a privately run retirement plan that combines professional asset management and lifetime income benefits.

Mr. Harkin, chairman of the Senate Health, Education, Labor and Pensions Committee, pitched his Universal, Secure and Adaptable Retirement Funds Act of 2014 in hopes of closing the $6.6 trillion retirement income deficit. If the concept sounds familiar, that's probably because Mr. Harkin proposed the idea in July 2012, along with a report that examined the retirement crisis in the U.S.

The USA Retirement Funds would be available to everyone, automatically enrolling workers at a contribution rate of 6% per year — a rate that employees can choose to raise, cut or cease altogether. The assets themselves would be pooled and managed professionally by private investment firms that are selected by a board of trustees. Each fund would have to be cleared by the Labor Department and have a board of independent trustees to protect the interests of workers, retirees and employers.

Participants would benefit from the pooling of assets in a number of ways. For one, the large pools of assets will lead to lower investment fees. Further, workers can receive lifetime payments, including survivor benefits and spousal protections, thanks to the mortality pooling from all of the participants in the USA Retirement Funds.

The USA Retirement Funds are not intended to replace 401(k)s or pension plans. Rather, USA Retirement Funds would supplement those plans, Mr. Harkin said Thursday at a press conference in Washington.

“A 401(k) is a savings program — that's fine, but don't confuse it with a retirement program,” he said, adding “there is no way to convert that savings into a stream of retirement income that people can't outlive.”

There also would be tax benefits for saving in the retirement fund: Workers could chip in up to $10,000 before taxes, and employers can get a tax benefit for contributing up to $5,000 per year for each employee. Low-income employees would be eligible for a refundable savers' credit.

Employees can change their USA Retirement Funds annually, and they can roll their 401(k) and IRA balances into the fund. If a saver is under 60 and has a small balance, he or she can roll it into another retirement plan. Meanwhile, those who are over 60 can opt to take a one-time lump sum withdrawal of $10,000, or 50% of the benefit — provided they have sufficient retirement income outside of the fund or they're facing financial hardship.

Mr. Harkin's proposal is separate from President Barack Obama's MyRA proposal — a retirement account that would invest in government bonds and that can be opened with as little as $25, funded with payroll deductions as low as $5. Once a MyRA account hits $15,000 — or after 30 years — it has to be rolled over into a private sector Roth IRA.

“I'm all for savings, but you need that retirement system,” Mr. Harkin said. “That's the leg of the [three-legged retirement income] stool we're focusing on. People need something that will be there when they retire, and they won't outlive it.”

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video

INTV

Children of AI, and when they are coming to financial advice

Technology reporter Ryan Neal talks about the tremendous progress in artificial intelligence in other industries, and how its applications are slowly making headway in the advice sector.

Latest news & opinion

SEC advice rule hearing updates

Commission says a lot of work ahead, public will have 90 days to comment.

SEC advice proposal unveiling: Here's what to expect

Chairman Jay Clayton will initiate momentous action Wednesday, as the commission meets to debate a rule on broker and adviser standards.

How active are the largest actively managed funds?

Active-share measures for the 15 largest actively traded mutual funds.

Morgan Stanley's success looks long in the tooth to analyst

Sanford C. Bernstein & Co. analyst Christian Bolu, concerned over stalled adviser growth and what it means for lending and deposit growth, believes the stock will "under perform."

Retirement coverage gap, 401(k) rollovers are big emerging threats for plan advisers

Proliferation of state retirement programs approaching the 'tipping point' where it will lead the federal government to step in.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print