Congress has foolishly refused to act on President Barack Obama’s plan to enroll new workers automatically in individual retirement accounts. That intransigence is extremely shortsighted. Fully half of working families in the United States will face reduced standards of living
Congress has foolishly refused to act on President Barack Obama’s plan to enroll new workers automatically in individual retirement accounts. That intransigence is extremely shortsighted. Fully half of working families in the United States will face reduced standards of living in retirement, according to the Center for Retirement Research at Boston College. Making it easier to enroll in IRAs is one way to help those who do not have retirement benefits at work.
With Congress blocking progress, states like California have prepared other ways to foster better retirements and Obama is trying to further their efforts. This month, he told the Labor Department to issue rules to help California and other states put into effect state-run retirement plans for workers who do not have employer-provided benefits. The states need clear rules to ensure that state-run plans do not run afoul of federal pension law.
In California, for example, the rules would speed development of a retirement-savings plan, which was signed into law in 2012 by Gov. Jerry Brown. The plan would cover 6.3 million private-sector workers, who would have 3 percent of pay deducted from their paychecks unless they opted out. The contributions would be pooled and conservatively invested by professional money managers selected and overseen by a board of public- and private-sector leaders chosen by the governor and the Legislature.
Pooled contributions and professional management would reduce plan fees and investing mistakes — big advantages not available in 401(k)s and IRAs. In being financed by actual employee contributions, this type of plan would be less likely to run into fiscal problems that afflict some public pension funds.
Federal pension law, however, never envisioned a state-run plan for private-sector employees. The Labor Department’s challenge is to grant exemptions from federal provisions that would otherwise prevent the states from moving forward, while ensuring that the plans incorporate strict procedures for payroll deductions, oversight, liability and accountability.
Not surprisingly, some in the financial industry, who do not want more competition, oppose state-run retirement plans. If the federal rules do not take effect before the end of Obama’s term, they could be shelved by a subsequent administration. The Labor Department should give the states all the help they need, and fast.
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