Leading with fear is not the way to greatness.
By Cyril Tuohy
A blizzard of activity around retirement legislation swept through the nation last week, heating up the debate about long-term savings, current spending and guaranteed income after the working years. Just what is going on?
First, President Obama called for the creation of savings bonds accounts in the form of the MyRA, or “My Retirement Account.” It came during his State of the Union address, and caught the financial services industry by surprise.
If anyone knew the new proposal for an “automatic individual retirement account on the job” was imminent, no one bothered to telegraph it before the speech.
A day later, Obama was in West Mifflin, Pa., at a U.S. Steel plant, instructing Treasury Secretary Jack Lew to move forward with MyRAs and a path for Americans without access to 401(k)s to create their own retirement savings with as little as $25.
“These account balances will never go down in value,” the president said. “They’re backed by the full faith and credit of the United States government.” Congress need not get involved, he added, because his presidential memorandum authorizes the creation of the savings bond accounts “that we can set up without legislation.”
For many low-income and middle-class families, a stumbling block to saving for retirement has been the minimums needed to get started, often $3,000 for an IRA. Past retirement confidence surveys have asked workers about their ability to save small amounts, and many say they could, according to the Employee Benefit Research Institute.
For Obama, a basketball aficionado, the full-court press to create small-bore retirement accounts was on. Workers, employers, financial advisors and lawmakers barely had time to digest the MyRA news when another retirement account initiative washed over the headlines.
On Jan. 29, Sen. Tom Harkin, D-Iowa, chairman of the Senate Committee on Health, Education, Labor & Pensions introduced the Universal, Secure and Adaptable (USA) Retirement Funds Act of 2014. The USA Retirement Funds Act is designed for the millions of working Americans who do not have a retirement plan, he said.
“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,” Harkin said in a statement on his website.
“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,” he said.
Lawmakers seem intent on allowing more private-sector defined contribution retirement programs, but within hours of the proposal, skeptics were wondering if the nation wasn’t on the brink of retirement program overload: 401(k)s, 403(b)s, traditional IRAs, Roth IRAs, Rollover IRAs, Simple IRAs, SEP-IRAs and Keogh plans for the self-employed.
Advisor reaction to Obama’s MyRA proposal ranged from praise to scorn. Some, like Sheryl Garrett of Garrett Network, said the plans will help many workers get started.
Other advisors like Ric Edelman, founder of Edelman Financial, who was quoted in a financial planning trade publication, dismissed MyRAs as the “26th mousetrap.” Still other advisors scoffed at a rate of return so low that the plans could hardly be considered as creating wealth.
But Harkin called MyRAs “a great first step” to helping more people prepare for retirement. Entire swaths of the populace, Hispanic-Americans for instance, don’t have anywhere near the access to employer-sponsored retirement plans to secure a decent retirement.
For them, starter accounts like MyRAs seem just the ticket. Once these workers finally get around to thinking seriously about how to finance their retirement, the thrifty among them will have stashed away thousands dollars to be rolled over into an IRA. MyRAs will have served their purpose.
“He (Obama) deserves a lot of credit for focusing on the retirement crisis, but the president has limited tools,” Harkin said in a Q&A published in USA Today over the weekend. Congress also needs to act, he said. “My bill would ensure that everyone has the opportunity to earn a secure and portable retirement benefit that they can't outlive.”
Washington, D.C., all of a sudden, seems packed with retirement initiatives: MyRAs, the USA Retirement Funds Act, the Secure Annuities for Employee (SAFE) Retirement Act of 2013, and the Lifetime Income Disclosure Act introduced last year.
Each piece of legislation has a different purpose, and a different goal. At the very least, the proposals will serve to further the discussion around the topic of retirement planning, even if not one of the bills is signed into law.
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 [email protected].
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