Disgruntled voters routinely rail against the superior benefits members of Congress supposedly award themselves. “If only we had similar access,” they lament. A new plan from Sen. Jeff Merkley, D–Ore., might bring it closer to happening. Merkley unveiled the American Savings Act on Thursday, which would allow private sector workers without access to 401(k)s the ability to utilize those similar to federal workers and members of Congress.
The American Savings Act would give any worker not currently covered by an employer-sponsored retirement savings plan access to a new type of retirement savings account that would be “universal, portable, simple and personal: the American Savings Account.”
“It shouldn’t matter whether you work part-time or full-time, as an employee or as a contractor, or for a huge corporation or a tiny business: every American worker deserves access to a financially secure retirement,” Merkley said in a statement. “With private-sector pensions becoming rarer and rarer, Social Security and retirement savings are more important to retirement security than ever, which is exactly why we must strengthen Social Security and expand high-quality retirement savings options to all workers.”
The plan helps American workers to save automatically for retirement with tax benefits, “rock-bottom fees” and the same types of investment options already enjoyed by federal workers and members of Congress.
Merkley pointed to a report from the left-leaning Center for American Progress that detailed the impact that a retirement savings system similar to the one proposed in the American Savings Act could have on Americans’ financial security.
“The Thrift Savings Plan is used by millions of federal employees, including members of Congress, to help ensure a secure retirement–and with good reason. The TSP offers simple, easy-to-understand, and sensible investment options, and low fees,” said David Madland, senior fellow at CAP Action and senior advisor to CAP Action’s American Worker Project. “Expanding access to a TSP-style plan could help shore up our private retirement system–which is currently failing to meet the needs of a significant part of our workforce–and offer a more secure retirement to millions of Americans.”
The legislation is also supported by AARP.
AARP Oregon State Director Jerry Cohen said, “AARP applauds Senator Merkley’s introduction of the American Savings Act, because this legislation recognizes the serious gap in retirement readiness facing this nation, as well as the many important efforts underway in many states, including Oregon, to ensure tens of millions of workers who have no access to a workplace retirement savings plan can begin to save for their retirement.”
Details include:
If an employer doesn’t already offer a 401(k) plan, the employee would automatically be given an American Savings Account (ASA). Initially, the employer will put 3% of worker earnings into an account with each paycheck, but the employee can choose to adjust the contribution to as low as 2% of income, or as high as $18,000 per year, or to opt out entirely.
ASAs will have the same investment options as federal employees get through the TSP plan, with similar low costs. ASAs are simple for employers, who simply need to send employees’ ASA savings to the federal government alongside employee tax withholdings. Workers will control their own accounts directly through a website.
Contributions to an ASA would be tax-deductible, and participants would be able to rollover any previous IRAs into their ASA or roll their ASA funds into an employer-sponsored 401(k) or 403(b) plan. An independent board of directors will manage the investment of the funds.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
