Harkin's universal retirement plan called a good start despite some hurdles

An ambitious idea for a universal retirement program introduced Jan. 30 by Sen. Tom Harkin, D-Iowa, is being welcomed for advancing a national debate on ways to improve retirement security, but it faces an uphill climb in Congress.

Under Mr. Harkin's Universal, Secure and Adaptable Retirement Funds proposal, employers would enroll employees in privately run plans with professional money management that are overseen by independent trustees subject to Labor Department oversight. Employers that already offer a defined benefit or 401(k) plan with automatic enrollment and lifetime income options would not have to participate.

“I think this bill is an excellent start to a conversation that we really need to have. As the president noted (in his State of the Union address), there is a retirement problem in this country,” said Donald Fuerst, senior pension fellow with the American Academy of Actuaries in Washington.

Mr. Harkin “has some excellent ideas in here, but there is a lot of work to be done on this bill to develop more support. I'm quite sure it will have to go through several changes to get that support,” Mr. Fuerst said. “There's going to have to be debate about which issues are more important, and I am sure there will be compromises.”

Mr. Harkin's proposal does offer employers and employees some flexibility in participating in the new plans. Employees could contribute up to $10,000 per year tax free, and employers could contribute up to $5,000 per year. Participants could choose to opt out or change contribution rates. Existing 401(k) or individual retirement account balances could be rolled into the new plans, and benefits are portable between employers.

But the mandate that employers make the plans available to employees is expected to have a hard time getting traction in Congress, even among Mr. Harkin's fellow Democrats. The idea “is to the left of the auto IRA” idea, which has not advanced in Congress, noted a benefits lobbyist who declined to be identified.

Diane Oakley, executive director of the National Institute on Retirement Security in Washington, thinks the payroll-deduction mechanism for Mr. Harkin's plan, similar to the way Social Security taxes are collected, reduces the administrative burdens and costs to employers.

An aide to Mr. Harkin estimated that pooling contributions into funds with professional money management could reduce the cost of retirement to individuals (who might be paying higher fees and getting lower investment returns) by as much as 50%. Ms. Oakley said the idea “could go a long way to put Americans on a solid financial track for their future” by providing risk sharing and lifetime benefits.

On Jan. 29, the two ranking members of the Senate Special Committee on Aging, Chairman Bill Nelson, D-Fla., and Susan Collins, R-Maine, introduced their own retirement proposal aimed at encouraging, but not requiring, small employers to offer retirement plans, along with savings incentives for employees.

“It's encouraging that several key members of Congress are focusing on developing an affirmative retirement policy agenda,” said Derek Dorn, a partner in Washington law firm Davis & Harman LLP and a former senior Senate tax aide whose clients now are plan sponsors and service providers. “We are seeing themes emerge that are consistent across party lines, such as creating new automatic enrollment (and) escalation safe harbors.”

“That consistency creates reasonable prospects that these ideas could move forward,” Mr. Dorn said in an interview.

Karen Friedman, executive vice president and policy director of the Pension Rights Center in Washington, said pension advocates endorse the basic concept of Mr. Harkin's proposal but would like a discussion about employer contributions to also take place.

“It's certainly a very strong start,” Ms. Friedman said in an interview. “The idea of having independent platforms, into which both the employer and employees can contribute, solely for lifetime income, is a good idea. Hopefully there will be other champions.”

Mr. Harkin, chairman of the Senate Health, Education, Labor and Pensions Committee, is working with a broad coalition of interest groups to advance the idea and work with officials in the Obama administration, which unveiled a workplace-based Roth IRA program on Jan. 29, to find common ground.

“The "MyRA' idea is a good first step, but Congress needs to act,” Mr. Harkin said. “This is probably one of the most underreported crises in America.”

Mr. Harkin is retiring after this congressional term and would like to leave this as his legacy, said the aide, who noted one politically attractive feature of the proposal is that “it lessens the stress on the safety net” of Social Security.