It's debatable if the fiduciary standard is 'higher' than suitability. But the better question might be, who's holding the bar?
By Cyril Tuohy
A day after President Obama announced a new type of retirement account, Sen. Tom Harkin, D-Iowa, introduced new legislation to “tackle the retirement crisis” by automatically enrolling workers into a new pension system that would stash 6 percent of a worker’s pay every year.
“Our country is facing a growing retirement crisis, and it’s only going to get worse unless we take action,” Harkin said in a statement on his website.
The Universal, Secure and Adaptable (USA) Retirement Funds Act of 2014 “would combine the advantages of traditional pensions — including lifetime income benefits and pooled, professional management—with portability and ease for employers of a 401(k),” the website noted.
Key features of the bill include universal coverage, automatic enrollment, secure lifetime income, lower costs, portability and easy for small businesses to administer, Harkin said.
“The USA Retirement Funds Act is particularly good for small business owners,” he said. “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’s bill comes after Obama, in his State of the Union address on Tuesday, announced a new retirement account dubbed “MyRA” for “My Retirement Account,” designed to help millions of Americans who are not covered by 401(k) plans nor own an Individual Retirement Account.
Obama called the program a “new savings bond that encourages folks to build a nest egg,” with “no risk of losing what you put in.” Think of it as a starter Individual Retirement Account (IRA) or an “IRA Lite.”
MyRAs would be analogous to “small Roth IRAs,” which are tax-free at withdrawals. They would be offered to workers making $191,000 annually. Workers participate through payroll deductions of as little as $5 per pay period.
Accrued balances of up to $15,000 would be rolled over into a regular Roth IRA, and normal Roth IRA penalties for early withdrawal would apply. Obama said MyRAs guarantee “a decent rate of return,” with no risk of losing principal, but with the advantages of investing in short-term Treasuries.
MyRAs have already drawn praise and scorn from advisors.
Some advisors said the program would help workers get started by putting away money in quantities so small they will hardly notice. Other advisors, however, have heaped scorn on the president’s proposal for yet another unnecessary government program that could be offered by the private sector.
Cathy Weatherford, president and chief executive officer of the Insured Retirement Institute, welcomed Obama’s “decision to highlight retirement security.”
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at firstname.lastname@example.org.
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