Harkin, chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee, began scouting the idea of an auto-enrolled plan for all workers in 2012 to address the country’s growing retirement crisis.
Pointing to the retirement income deficit, Harkin said in a press conference discussing the Act that the difference between what people have saved for retirement and what they should have at this point is at least $6.6 trillion. Only one in five people has a defined benefit (DB) plan, and half of workers have no plan at all. Half of Americans have less than $10,0000 in savings, and 85% of Americans report they are worried about their prospects for retirement.
There is strong public support for reforming the retirement system. A recent study by the National Institute for Retirement Security found a majority of Americans agree there is a need for a strong, universal pension system, and 90% favor a plan for all Americans, that is portable and that provides a monthly check throughout retirement.
The USA Retirement Funds Act tackles the retirement crisis head-on by ensuring people currently without access to a workplace retirement plan would finally have the opportunity to earn a safe and secure pension benefit for life.
“The plan would be shaped as a lifetime stream of income,” Harkin said in a press conference. Unlike 401(k) plans, there would be no lump sums and no borrowing. The assets would be annuitized at retirement age.
Key features of the USA Retirement Funds are:
- 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% 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%.
- Portability: People would be able to take their benefit with them as they change employers.
- Simple for businesses: Small businesses can easily participate and would not have to take on risk or administrative burden.
As well as establishing USA Retirement Funds, the Act would make it easier for small employers to offer pooled retirement plans, encourage plan sponsors to incorporate lifetime income solutions into their defined contribution plans, provide increased fiduciary and other protections for plan participants, simplify the administration of defined benefit pension plans, and improve the pension insurance system.