Is the time right for a new, national pension plan, underwritten by private insurance companies?

Coming on the heels of President Obama’s unveiling of the new MyRA proposal, Senator Tom Harkin announced Thursday the finalized details for his Universal, Secure, Adaptable Retirement Funds Act – legislation he hopes will provide a stable and financially solid mechanism for the 75 million Americans without access to workplace retirement plans.

Harkin, Chairman of the Senate Health, Education, Labor and Pensions committee, says his proposal would create a pooled retirement vehicle designed especially for small businesses, offering universal coverage and an opt-out enrollment system designed to maximize participation. A 6% savings rate would be the standard, auto-enrolled starting point for workers, who could begin to draw benefits as early as age 60.

Three years in the making, the Iowa Democrat’s USA Retirement Funds Act comes as the longtime advocate for fair wages and retirement protection is himself closing in on retirement. He says he hopes he can find bipartisan support for the plan, which he says could work in addition to the new MyRA proposal or any future modifications to the existing 401(k) system.

“I’m all for the president’s program. But by spreading the retirement risk over larger pools, the benefit [of this system] could be 50% cheaper than other DC plans,” Harkin explained. “We want to make it easy for even the smallest employer to offer a program, and the employer would have no fiduciary responsibility, either. I want to make it clear that this is not a new government program; it’s one that would be run by the private sector, like a DC or DB plan.”

While the proposal has been created to replicate some of the benefits of the old-fashioned pension benefits many American workers used to enjoy, Harkin says the new system might also encourage employers to kick in a match of their own – as many provide for their employees through a company sponsored 401(k) program, as a recruitment and retention benefit for workers.

Harkin says that the pooled benefits of nearly a third of the U.S. population – especially the underserved African-American and Latino workers, and women, who trail far behind men in retirement savings – could also provide a useful source of long-term “patient money” to help fund investments in America’s looming infrastructure issues. 

The investment fund, he adds, would be overseen by an independent board of trustees from the private sector, approved by the Department of Labor.

Denise Bowyer, vice president of American Income Life and National Income Life Insurance companies, said she and other insurers have expressed great interest in taking part in the privately run, government-initiated retirement proposal, especially as it eliminates some of the cost factor which discourages small employers from taking part in traditional retirement offerings.

“This bridges the values and pragmatism of small business,” Bowyer noted. “And setting it up to include payroll deduction and auto-enrollment is a smart move.”

Harkin admits the hard part is trying to find support for the proposal on the other side of the political aisle. “But it may be a time when forces coalesce, and now that we have the bill developed, that will at least generate some conversation,” he says. “At least it will be part of the debate.”

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