When President Barack Obama introduced a new retirement savings plan during his State of the Union speech last month, the Republican response was uncharacteristically muted. Although Republicans were upset about the president’s new reliance on executive authority to push his agenda, they had few harsh words about the details of the retirement idea.
Dubbed MyRA, Obama’s initiative is intended to allow workers who do not have access to other workplace savings plans to open an account overseen by the government that would invest in low-risk Treasury bonds. It’s a relatively modest proposal, one that would be entirely voluntary for employers and employees and would only guarantee low returns to minimize risk.
“I certainly will look at that,” said Rep. Phil Roe, R-Tenn., ranking member of the subcommittee on pensions at the House Education and the Workforce Committee. “Anything for economic security downstream, I will look at that.”
“I’m almost for anything that would allow people to save more and take care of the future,” said Sen. Orrin G. Hatch, R-Utah.
The GOP’s reticence is no accident. Even in an era of bitter partisanship, there is agreement among experts on the left and the right that the retirement security of Americans is a pressing issue. What’s more, there’s broad agreement on how to fix the problem.
One key solution, many on both sides agree, would be some form of automatic deduction from worker paychecks into a retirement savings account, with workers given the choice of opting out. The idea was featured prominently in a Heritage Foundation report and in a study by the liberal Center for American Progress.
Behavioral economists have long found that workers are much less likely to voluntarily deduct part of their paychecks to finance a retirement account. In workplaces where the employer automatically enrolls new employees in a plan, the pickup rate increases. One study found enrollment in retirement plans grew from 37.4 percent to 85.9 percent after it became mandatory.
That suggests that automatically signing up workers for a retirement savings plan would go a long way toward winnowing the gap between what Americans have saved and what they will need to cover basic expenses in retirement. According to the Employee Benefit Research Institute, that gap now stands at $4.6 trillion.
Obama has also embraced the idea of mandatory savings and included language in his budget proposals to create automatic individual retirement accounts for people who do not have a work-based retirement plan such as a 401(k). The administration’s idea would mandate that employers with more than 10 employees set up IRAs for their workers. The proposal includes tax credits to soften the blow on smaller firms.
Vice President Joe Biden waits to conduct a mock swearing-in ceremony with Sen. Brian Schatz, D-Hawaii, in the Capitol's Old Senate Chamber, December 2, 2014. Schatz was sworn in to serve the remainder of his term since he was appointed to the seat after Sen. Daniel Inouye, D-Hawaii, passed away.