SURVEY SAYS: Views About Harkin’s Proposal
Among responding readers, 15% said they like everything about Harkin’s proposal and 15% said they do not like anything about it.
When given choices of the elements of his proposal (and allowed to make more than one selection), 43% said they like the fact that employers can continue to offer other retirement plans. Forty percent like the idea of employees earning a lifetime income benefit, and 38% each chose that it would not be government-run and that it would relieve employers from fiduciary liability of running the funds.
Thirty-four percent of respondents favored automatic enrollment of employees; 32% like risk sharing by pooling the assets of all participants; and 30% liked the idea of competition among the USA Retirement Funds keeping costs low. Twenty-six percent indicated they like Harkin’s ideas for strengthening the Social Security system.
Among verbatim comments, some responding readers indicated Harkin’s ideas could be incorporated into current retirement plan offerings, or that the focus should be on fixing what is already offered. A couple of readers noted that Harkin’s proposal mimics variable annuity plans. Some folks brought up some unanswered questions. However, there were quite a few comments praising Harkin’s ideas.
Editor’s Choice goes to the reader who said: “Somebody always has a better mouse trap that turns out no better than the rest if the mouse don’t eat the cheese.”
Harkin’s proposal is at http://www.harkin.senate.gov/documents/pdf/5011b69191eb4.pdf.Verbatim
His ideas on professionally managed retirement accounts and lifetime income streams could easily be incorporated into the current defined contribution system. You could require that each participant be in a managed account. You could also require a certain percentage (e.g. 25-33%) of a participant's retirement account can be required to purchase a lifetime income benefit.
The thing about the Harkin plan I like is not listed -- the concept of having participants bear the investment risk of an annuity-type benefit. I would prefer a law that allows employers to adopt plans in which participants bear the investment risk and the sponsors bear the investment risk -- a true hybrid. Since the investment risk is one of the major barriers to employers maintaining/establishing DB plans -- eliminate that barrier.
Not thrilled w/ the idea. Forces automatic savings but then people can remove themselves if they prefer a new TV or car or manicure. The reason many people don't save for retirement is because they prefer to have "fun" today. This plan still allows that but allowing the employee to remove themselves from the plan. It doesn't help those that can't work...and who pays for admin, committees, etc.?
Best ideas I've heard to try and shore up Social Security
It's the first proposal that makes sense to me. Congress has to act and stop kicking the can down the street. We elect these people to come up with ideas like this. Let's get 'er done!
Does anyone really think this won't cannibalize the existing system? It will ultimately be another big take-away for employees.
His proposal is so unclear that it is too hard to make any decision except to reject it.
Verbatim (cont.)
Who will pay? Universal & automatic makes things very expensive. And open to waste. Brought to us by the ones who've almost wrecked the Ship of State already. Just say NO to the Nanny State!
Harkin dances around two critical issues that need to be addressed before we can move forward with making any real impact to someone's assets at retirement. First, outside of the very poor, the US population has made (and I believe will continue to make) very poor decisions about what to do with their earnings, choosing to buy more stuff instead of first putting 10-20% of their income aside for savings. We as a society tend to rely on the governmental safety net then to take care of us after these poor decisions. We need to get a little tougher on expecting people to take care of themselves and hold them accountable for their poor decisions instead of expecting the more responsible in our society to bail them out. Secondly, social security is a joke and Harkin's expansion of income subject to it with a whopping 5% return of that additional money is nothing more than a redistribution of wealth. Where is the discussion on raising the retirement age based on adjusting life expectancy? While I agree there needs to be some changes (and the proposal does cover some of reasons that changes are needed) let's get real about defining ALL of the reasons for the current retirement crisis.
I hope this goes somewhere, and doesn't become a political device (see Romney's health care plan vs. Obama's health care plan... dudes, they are the same thing).
DBP employer risk is significant, as future funding is very problematic. Allow Soc. Sec. contributions, or a % of them, to be placed in an employees personal account would be more efficient. Harkin's plans doesn't mention a "Lock Box", therefore I'm skeptical about the Gov't tapping into any of these plans for discretionary use.
Still has to much government control no US Citizen should be forced to belong to any Government plan be it Health Insurance or Retirement. Social Security is a forced plan and will the ones paying into it now ever see the funds?
Just another ponzi scheme. The simplest way to strengthen Social Security would be to remove/raise the cap. Taking away responsibility for one's retirement will not solve the issue. It will only increase the dependency on employer and/or government plans. Employers are getting squeezed on so many fronts right now that another requirement may put some out of business. Not what we need right now.
#2 in his Principles for Reform page, I totally disagree. Nothing in this life is certain. We, as Americans, are a privileged society but we need to get away from the idea we "deserve" or have a "right". Look around the globe, what makes us so high and mighty!?!
Verbatim (cont.)
nothing new here - just another version of 401(k) with auto-enroll
The thing I like most about Harkin's proposal is that it gave me a good laugh. These clueless politicians come in and think they somehow have insight into real world problems, then proceed to reinvent something that already exists. Congratulations, Senator. You've reinvented a group variable annuity.
Why are we creating another fund, when this is what Social SEcurity was supposed to do in the first place. Take away the disability and all other benefits paid out to non-retirees that it was not originally intended to do and stop siphoning funds from social security, then the Americans will have a stable retirement income/fund. Why create another whole fund with all kinds of government regulations. The 401k was also supposed to do this same thing, now once again government is trying to create ANOTHER retirement plan because their first two efforts are a failure. Fix what's broke, don't create another fund yet again with much more government regulation. 401k's are a good idea, but too heavily regulated, too many rules and restrictions which is ridiculous - typical government intervention.... Anything that the IRS oversees is a disaster so take the IRS out of it....then 401k's will work and people will trust them and more employers will jump on board. Set up so people can purchase lifetime annuities that are guaranteed......
The general concept of Harkin's proposal already exists in the form of Variable Annuity Plans. Authorized under a 1953 Revenue Ruling, VAPs provide lifetime benefits, although the amount of the benefit depends on the performance of the commingled plan assets. By pooling the longevity risk, VAPs can provide higher benefits to participants than DC plans with the same contribution levels and also provide some inflation protection automatically if the return on plan assets exceed the "hurdle rate". [If there is one shortcoming of DB plans, it is that benefits are designed to be level and COLAs are generally granted on an ad hoc basis (except for some public plans).]
So will the money really put into a trust where it will stay until paid to beneficiaries...or will it be similar to Social Security where the trust fund consists of file cabinets filled with IOUs from Congress.
Harkins is correct that employees are overwhelmed by the decisions involved and tend to put it off.
Reducing regulation and costs would be a huge factor. That way, more small companies might be inclined to offer plans to their employees. Right now, I think plans are too complicated for small employers; they have to spend time running their companies, not worring about if they're following all the regulations or not.
Verbatim (cont.)
I do not support the increase in the Social Security Wage Base included in this proposal.
Harkin has a lot of good ideas. The proposal is far from perfect, but since when are there ever any great answers when it comes to politics?
We need a plan to address the retirement crisis. This appears to be a balanced, thoughtful approach. Of course, with Congress in a deadlock, I think we have little chance of anything this sensible passing unless it also becomes the required default for Congressional retirement.
Somebody always has a better mouse trap that turns out no better than the rest if the mouse don't eat the cheese.
If employers didn't have to put retirement information on their financials, that would help. There also needs to be a reduction of all the required communication to employees. They don't read it or understand it. It just costs more. As the government has tried to raise more taxes off the db system, it started killing it. Just like they killed the retiree health insurance with section 89. If you could get employers to carry health insurance on retirees again, that would reduce a huge amount of future expense for retirees. I don't think Harkin's idea is anything new. If it is cheap enough to participate in, employers will drop their own retirement plans just like health insurance will be dropped when it is cheaper to pay the penalty than to carry health insurance on employees with obamacare.
Hopefully it will help Senator Harkin to retire. We'll have a chance to help him do that in two years, regardless.
The devil's always in the details, and this proposal is no exception. It's a broad framework for discussion, and that's a good thing. And it seeks to expand both the number of, and the amount of, retirement savings/savers - also a good thing. But an employer mandate likely means that some will pay for this with their jobs. And if it IS a cash balance "hybrid", then SOMEBODY is picking up some funding risk...
NOTE: Responses reflect the opinions of individual readers and not the stance of Asset International or its affiliates.