congressOn Jan.30, Sen. Tom Harkin, Chairman of the Senate Health, Education, Labor, and Pensions (HELP) Committee, unveiled “bold new legislation to tackle the growing retirement crisis and rebuild the private pension system.” Much has been written about the legislation in the financial press since then (and we’ll cover various viewpoints from time to time in blogs to come), but here for starters is the first section of the press release that announced the proposal:

Harkin’s legislation, the Universal, Secure, and Adaptable (USA) Retirement Funds Act of 2014, comes at a time when the retirement income deficit has reached at least $6.6 trillion, leaving many Americans vastly unprepared for retirement. Seventy-five million working Americans do not have a retirement plan, and half of all Americans have less than $10,000 in savings.

“Our country is facing a growing retirement crisis, and it’s only going to get worse unless we take action,” Harkin said. “The USA Retirement Funds Act offers a common-sense solution to the retirement crisis by giving the 75 million people without a retirement plan at the workplace the opportunity to earn a safe, portable, and secure pension benefit for life.  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.

“The USA Retirement Funds Act is particularly good for small business owners.  It would allow them to offer more competitive benefits to their employees while at the same time relieving them of the burden of managing a pension plan themselves.” Harkin added. “It is important to note that the USA Retirement Funds Act would also be good for the economy.  It would significantly increase retirement savings, and all of that savings would be invested right back into the economy, fueling new growth and job creation.”

Harkin’s 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). The key features of USA Retirement Funds include:

  • Universal Coverage: USA Retirement Funds would be available to everyone, including the more than 61 million people without access to a workplace retirement plan and the 14.5 million people who are self-employed.
  • Automatic Enrollment:  Employees would be automatically enrolled at a rate of 6 percent per year, but could choose to raise, lower, or stop their contributions.
  • Secure Lifetime Income:  Benefits would be paid monthly for life, and participants would be shielded from market volatility and other risks.
  • Lower Costs: Pooled, 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.