Meet the Senator Who Wants to Kill the 401(k)

Senator Tom Harkin is getting up there in years: He's 74 and plans to retire after his current term is up in 2015. So it's not surprising that he might be thinking about the retirement issue overall. 

That's good news for millions of Americans who hope they'll be able to retire, because Harkin has emerged as Congress's boldest proponent of retirement reform. He released an important report about the looming retirement crisis in 2012 and, today, released a detailed plan for addressing this crisis. Near the center of Harkin's plan is an agenda for moving America past its failed experiment with the 401(k). 
 
Harkin wants to enact a new universal private retirement system called the USA Retirement Fund, which follows all the principles that I discussed in this space yesterday, and then some: the new system would cover all employees at businesses with ten workers or more; it's universal and automatically enrolls employees; accounts would be portable; retirement assets would be professionally managed in pooled accounts with low administrative costs and low risks to investors; and benefits would be guaranteed for a lifetime.
 
All that stands in contrast to the well-documented defects of 401(k)s, which don't cover a great many workers; are hard to move from job to job; incur high fees for managing individual accounts; place too much burden on individuals to manage their investments; and expose retirees to risk they could run out of money.
 
The administration's new MyRA plan has similar features as Harkin's plan, but his is better and bolder. 
 
If enacted, Harkin's USA Retirement Fund would begin to move America away from the 401(k) because the new system would do everything that 401(k)s do, but with less hassle and cost. It'd be easier for all businesses to use, without having to choose and manage a 401(k) plan, which would be good for small businesses in particular. It would allow employers to make contributions to worker accounts, just as they do now. Harkin's bill will be fought by some business groups, because it forces all businesses with more than ten employees to participate in the USA Retirement Fund -- which is sure to be cast as yet another mandate from Washington for struggling mom-and-pop outfits. 
 
But it's exactly that kind of mandate that is needed right now to address the retirement crisis -- given that nearly half of workers don't have access to a retirement plan at work. Anyway, the benefits to businesses (and nonprofits) are so much greater than the downsides. At Demos, the administrative staff has recently spent months working to switch the organization to a new 401(k), and managing our plan has always been a time suck. The USA Retirement Fund would free us from this responsibility if we chose to dump the 401(k) thing altogether. Multiple that time saving by potentially millions of businesses and you get a sense of how big a deal this could be. 
 
Oh, and then there are all the savings from lower administrative fees. Demos is switching 401(k) providers because the fees of our current plan are too high, as they are for many plans -- draining retirement wealth, as Demos documented in a 2012 report. The lower fees of the USA Retirement Fund, which revolves around pooled rather than individual accounts, could save Americans billions and billions of dollars over the long term.
 
What Harkin's really proposing here is a universal public option for pensions (albeit one privately run), and, over time, this option could put the 401(k) industry out of business -- or least greatly shrink it. And that would be a good thing for ordinary Americans.  
 
Of course, though, it would be bad thing for the lavishly paid middlemen on Wall Street -- which is why we can expect the finance industry to fight Harkin's plan at every turn. 
 
And we'll really have a fight if Congress ever moves to slash the absurdly generous tax subsidies that help affluent Americans save for retirement, as Matt Bruenig discussed here yesterday. 
 

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