Employer Mandate Key to Harkin Plan

Employers are the key to a plan Sen. Tom Harkin (D-Iowa) unveiled Jan. 30 to dispel what he calls the “dark clouds” of retirement insecurity. Under Harkin’s “Universal, Secure and Adaptable (USA) Retirement Funds Act,” employers would be required to offer a new kind of retirement account.

At a press conference in Washington, D.C., Harkin touted his legislation as a way to stop a secure retirement from becoming a “fainter and fainter” dream. He cited statistics saying that the gap between retirement income and what retirement needs is at least $6.6 trillion, and that 75 million working Americans do not have a retirement plan. He also claimed that higher-income Americans do most of the retirement saving right now.

Harkin disputed that 401(k)s were really retirement plans in the first place, calling them “savings plans” and saying that they were never intended to replace pensions. He said he does not mean to replace pensions and 401(k)s, but rather to provide something for those who lack access to them.

Harkin admitted that there was “some concern” regarding whether the proposal would take away from 401(k)s, but said that he doesn’t think that it would. The FAQs Harkin’s office issued concerning the proposal note that “it is important that systemic reforms not compromise” the retirement security of the many people for whom it acknowledges that the current system is working.

To help ensure greater stability and reduce risk, the proposal would not allow withdrawals before age 60, calls for monthly payments for life and would not allow lump-sum payments. Nor would it allow borrowing from the accounts. It would allow employees to take their accounts with them if they change employers.

The plan is designed to maximize employee participation, Harkin said. Enrollment would be automatic for employees at 6% of their paychecks, but not mandatory — employees could opt out. What would be compulsory would be participation by employers with 10 or more employees and that don’t offer a pension or 401(k).

Harkin said participation is where employers’ responsibility for the USA Retirement Fund accounts would stop. Employers could kick in a contribution to employees’ accounts, but other than that they would have no decisions to make. He likened the role employers would have to that which they fulfill regarding Social Security withholding.

Harkin cast the measure as one that relieves small business of onerous responsibility. One “can’t expect a small business to be a fiduciary,” said Harkin, noting that the bill would assign fiduciary duty to a board of trustees. The trustees, whom he told NAPA Net would come from private-sector investment firms, would be appointed by the Department of Labor initially and then by board itself after it is first established. He said its members would be at arm’s length from the companies from which they hailed.

Largely absent was discussion of what it would require of employers regarding current employer plans.
Just offering any 401(k) will not be enough to relieve an employer of the requirement to provide access to a USA Retirement Fund account, a fact Harkin did not discuss at the press conference. An employer-provided 401(k) must include automatic enrollment and a lifetime income option, and if it does not, an employer must change its plan so it does so. If they do not, they would have to participate in the USA Retirement Fund.

This was not lost on American Society of Pension Professionals & Actuaries Executive Director/CEO Brian Graff, however, who said of the plan, “In order for employers to be exempt from the ‘USA Retirement Fund’ requirement … they would have to alter their 401k plan to look more like a defined benefit plan, which may be a burden on the employer. Instead we should focus expanding retirement savings opportunities rather than trying to change the current system.”

This is not the first time Harkin has floated such an idea — in 2012 he proposed what he then called “USA Retirement Funds,” but the proposal did not result in formal legislation. When asked how the new bill differs from his earlier proposal, he responded that there were no major differences, but the proposal has been modified since then based on discussions with the private sector and congressional hearings.

Harkin was more enthusiastic about his bill than its prospects of enactment. When asked how he regarded the bill’s chances, Harkin struck a note of optimistic realism, saying ‘We’ll do what we can this year.” He added that “at least the debate is joined.”

Add Your Comments


  1. Joseph Gordon
    Posted January 31, 2014 at 11:29 am | Permalink

    What Harkin seems to forget is that it was his meddling in the ’80’s which made keeping pensions so onerous that mass terminations happened, resulting in the current system, which, with all of its warts, is a pretty darn good one, if people just saved more!
    The recent budget deal on both sides to jack up PBGC premium 100% by 2015-6, suggests they want to kill all DB plans for small business!

  2. Charles Thompson
    Posted January 31, 2014 at 11:58 am | Permalink

    You can lead a horse to water but can’t make him drink. Is Harkin so stupid as to believe that people will all of a sudden see the light and start saving for retirement. I can see it now in a small business -“Oh, oh, Tom Harkin has lit the way for us. I will now save for retirement. In fact, I’ll name it after him; I’ll call it the Harkin Account. Oh, Oh praise Tom Harkin.”

  3. Arthur Pedgrift
    Posted January 31, 2014 at 4:04 pm | Permalink

    No government administered plan of any type,either healthcare or retirement, has ever been successful. All have been subject to fraud and bungling mismanagement, along with the attendant additional costs and regulations. The government needs to get out of those businesses! Ameri-can business is already struggling to compete globally. This silly law would only exacerbate that problem.

  4. David Cluley
    Posted January 31, 2014 at 10:27 pm | Permalink

    There are numerous articles appearing in the media about people needing to save more for retirement. The authors, while recognizing the future need, are apparently blind to the current reality. Incomes are growing at a paltry rate, if at all, while taxes and expenses are eroding disposable income – the very thing that drives the marginal economy. Just where are people supposed to get the money to save for retirement?

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