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Offline Rapunzel

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Iowa senator pitches retirement fix
« on: February 04, 2014, 01:12:34 AM »
http://www.usatoday.com/story/news/politics/2014/01/30/harkin-retirement-bill/5051887/

Iowa senator pitches retirement fix
Jennifer Jacobs, The Des Moines Register 11:31 a.m. EST January 30, 2014
Tom Harkin's plan would create new private pension system to promote saving.


Workers across the USA would be enrolled automatically in a new private pension system that would help them stash 6% of their pay each year in a proposal that an Iowa senator announced Thursday.

The legislation would deal with the "retirement crisis" — the fact that half of Americans have less than $10,000 in savings, according to a written description of the plan from Sen. Tom Harkin shared Wednesday with The Des Moines Register.

The Iowa Democrat, who announced last year that he won't run for a sixth term, wants to create USA Retirement Funds and require businesses to enroll their workers unless the employer already provides a pension.

Employers wouldn't have to contribute any money unless they wanted to, but they would handle the payroll deductions. The government would have no obligation for contributions to the privately run plans. And employees could choose to opt out.

Harkin's proposal is one pitch in what is shaping up to be a major debate over retirement savings. President Barack Obama introduced his MyRA plan in his State of the Union address, and other federal lawmakers intend to craft their own ideas. The legislation would have to pass a sharply divided Congress before getting to the president's desk.

Harkin said his plan would complement the president's but would be more comprehensive because Obama "has limited tools."

“A wide body of research indicates that saving automatically via a payroll deduction enables more working Americans to prepare for retirement.”
— Diane Oakley, National Institute on Retirement Security

With the USA Retirement Funds, the government wouldn't guarantee the money. But low-income workers would be eligible for a "refundable savers credit" that would match contributions with a direct deposit to their savings fund of up to $2,000 a year, a summary of the plan says.

Workers won't be forced to participate, the plan says. But Harkin believes that if the system is "opt-out instead of opt-in, millions more people will begin to save."

"If it's voluntary, it's hard to argue with," said Mike Ralston, president of the Iowa Association of Business and Industry. "Another option is a positive."

Harkin will argue that his idea is good for business, partly because present plans require employers to be responsible and liable for management of retirement funds they offer. USA Retirement Funds would relieve employers of that burden; the funds would be managed by an independent board of trustees, the summary says.

But one economist who studies retirement reform isn't cheering.

"I don't want to be too negative about what appears to be a well-intentioned attempt to improve the retirement security for more Americans, but it's important to note that this is an overly complex solution to a problem which has a very simple solution," said Duncan Black, a liberal political blogger with a doctorate in economics from Brown University.

Black said the retirement income crisis is real: As the burden of retirement saving and planning has shifted onto individuals, the era of the golden retirement has disappeared for most private-sector workers.

"The 401(k) experiment has been a failure," said Black, a former economics professor at the University of California-Irvine.

If people haven't been accumulating enough money in 401(k) plans or Individual Retirement Accounts (IRAs), a slightly better and more inclusive 401(k) system like USA Retirement Funds is unlikely to succeed either, he said.

More than that, the retirement crisis is looming now. At best, the USA Retirement Funds would improve the retirement outlook for current 20-somethings, Black said.

Black thinks a great way to ensure that people of retirement age have adequate income is Social Security.

"It's cheap to administer, and with slightly more generous benefits, it would be the simplest way to achieve the goal of retirement security for all," he said.

Harkin also wants to increase Social Security benefits with his Strengthening Social Security Act of 2013, but in the current political climate, beefing up entitlement programs is likely off the table.

Principal Financial Group, one of the leading pension administrators in the world, applauded several provisions in Harkin's bill but emphasized its preference for expanding the current employer-based retirement system.

“We believe the best way to expand retirement security for Americans is expanding access to voluntary work-site retirement plans.”
— Greg Burrows, Principal Financial Group

Greg Burrows, senior vice president of retirement and investor services, noted that employer-sponsored 401(k) plans and similar offerings have helped millions of workers save trillions of dollars.

"We believe the best way to expand retirement security for Americans is expanding access to voluntary work-site retirement plans and encouraging plan designs that increase participation and savings for future retirees," he said.

Gretchen Tegeler, executive director of the Taxpayers Association of Central Iowa, said it's good to see attention on the issue of retirement security.

"But perhaps something simpler, less pervasive and better meshed with the current industry configuration should be tried first," she said.

Tegeler said this proposal appears to mandate a kind of quasi-defined benefit structure: In a severe economic downturn, benefits could be decreased by as much as 5% per year, but that same limit doesn't apply for benefit increases when a fund is doing better than expected.

"This is precisely what has led to problems with public pension plans — over-promising when times are good, and no adjustment of benefits when losses occur," said Tegeler, who was Iowa Gov. Terry Branstad's budget director for eight years.

Another analyst called the proposal "a significant leap forward."

"A wide body of research indicates that saving automatically via a payroll deduction enables more working Americans to prepare for retirement," said Diane Oakley, executive director of the Washington-based National Institute on Retirement Security.

And the plan would offer a lifetime benefit that won't run out while allowing people to pool their resources and share risk, Oakley said.
$100 bills

Save about 10 times your current income before you retire; that's the general rule of thumb.(Photo: Liliya Drifan, Getty Images)

Basics about Harkin's plan

• The problem.45% of working-age households have no assets in retirement accounts, according to data from the Federal Reserve Bank. And others with retirement plans haven't saved enough.

• One solution. Privately run USA Retirement Funds would give people the opportunity "to earn a safe and secure pension benefit for life," said Sen. Tom Harkin, D-Iowa.

• How it would work. Every business would be required to enroll their workers automatically in a USA Retirement Fund, a privately run retirement plan.

• Exceptions. Employers who already offer a defined benefit pension or a 401(k) retirement plan with automatic enrollment and a lifetime income option would be exempt.

• Contribution rate. Workers would contribute 6% a year but could choose to raise, lower or stop their contributions.

• Maximum limits. Workers could chip in up to $10,000 a year pretax, and employers also would be able to contribute up to $5,000 per year for each employee, provided the contributions are made uniformly.

• Benefits. Participants would earn a benefit paid out over the course of their retirement with survivor benefits and spousal protections — like a traditional pension. The amount of a person's monthly benefit would be determined based on the total amount of contributions made by or on behalf of the participant plus investment performance over time.

How much do you need?

When sizing up one's retirement nest egg, a very general rule of thumb is to have 10 times the amount of annual income before retirement.

So someone making $50,000 would need $500,000 in combination with Social Security to adequately fund retirement, said Terri Hale, a spokeswoman at Principal Financial Group, which is one of the leading pension administrators in the world.

A good way to get caught up is to be sure you are saving enough to get the matching contribution from your employer, Hale said.

Those who are older than 50 years can take advantage of catch-up contributions, which allow them to defer an additional $5,500 into their work-site retirement plan.
“The time is now near at hand which must probably determine, whether Americans are to be, Freemen, or Slaves.” G Washington July 2, 1776

Offline jmyrlefuller

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Re: Iowa senator pitches retirement fix
« Reply #1 on: February 04, 2014, 07:30:34 AM »
So basically they are going to cut an additional 6% out of your paycheck (plus 3% you don't see) for a personal retirement even though the feds already cut 6% out of your paycheck (plus an additional 6% you don't see) for Social Security.

This is just a backdoor to double the Social Security tax.
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Online Bigun

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Re: Iowa senator pitches retirement fix
« Reply #2 on: February 04, 2014, 10:59:30 AM »
Tom Harkin is an out and out COMMUNIST!

Online massadvj

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Re: Iowa senator pitches retirement fix
« Reply #3 on: February 04, 2014, 11:40:31 AM »
They alleviate Americans of personal responsibility, that exacerbates the problem they were trying to fix, and so they "fix" it again by further alleviating Americans of personal responsibility.  It's an endless cycle that ultimately results in the absolute loss of freedom.  I hate to be the bearer of this bad news to socialists, but guys, freedom and personal responsibility go hand in hand.  You can't have one without the other.  Too many of you seem to think you can be free if only you could do what you want with the other fellow's money, or in this case, tell people what they should or must do with their own.

The only difference between a "voluntary" and "involuntary" government program is time.
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Online Bigun

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Re: Iowa senator pitches retirement fix
« Reply #4 on: February 04, 2014, 11:56:44 AM »
They alleviate Americans of personal responsibility, that exacerbates the problem they were trying to fix, and so they "fix" it again by further alleviating Americans of personal responsibility.  It's an endless cycle that ultimately results in the absolute loss of freedom.  I hate to be the bearer of this bad news to socialists, but guys, freedom and personal responsibility go hand in hand.  You can't have one without the other.  Too many of you seem to think you can be free if only you could do what you want with the other fellow's money, or in this case, tell people what they should or must do with their own.

The only difference between a "voluntary" and "involuntary" government program is time.

 :amen:  :amen: and  :amen:

Offline Rapunzel

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Re: Iowa senator pitches retirement fix
« Reply #5 on: February 04, 2014, 02:58:05 PM »
BTW I would not have known to go looking for this article if I didn't watch The Blaze - Wilkow was all over this yesterday.
“The time is now near at hand which must probably determine, whether Americans are to be, Freemen, or Slaves.” G Washington July 2, 1776

Offline xfreeper

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Re: Iowa senator pitches retirement fix
« Reply #6 on: February 04, 2014, 05:11:49 PM »
they can keep the money in a lock box
let's start with congress people's pensions
« Last Edit: February 04, 2014, 05:13:05 PM by xfreeper »

Offline Oceander

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Re: Iowa senator pitches retirement fix
« Reply #7 on: February 04, 2014, 08:51:33 PM »
So basically they are going to cut an additional 6% out of your paycheck (plus 3% you don't see) for a personal retirement even though the feds already cut 6% out of your paycheck (plus an additional 6% you don't see) for Social Security.

This is just a backdoor to double the Social Security tax.

Actually, the employee bears more than half of the employment tax; although the nominal incidence of those taxes is 50/50, employers have a greater elasticity of demand for labor than do employees for the supply of labor; as a result, part of the economic cost of the 50% nominally imposed on the employer ends up being borne economically by the employees.  Effectively, employment taxes represent an extremely regressive income tax on personal compensation of roughly 8% to 10%.

Online Bigun

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Re: Iowa senator pitches retirement fix
« Reply #8 on: February 04, 2014, 09:22:33 PM »
Actually, the employee bears more than half of the employment tax; although the nominal incidence of those taxes is 50/50, employers have a greater elasticity of demand for labor than do employees for the supply of labor; as a result, part of the economic cost of the 50% nominally imposed on the employer ends up being borne economically by the employees.  Effectively, employment taxes represent an extremely regressive income tax on personal compensation of roughly 8% to 10%.

Very good! But I contend that they fall 100% on the employee.

Employers calculate the costs of employees and then decide what they can actually pay the employee directly. ALL of the employer's costs are included in this calculation.

Offline Rapunzel

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Re: Iowa senator pitches retirement fix
« Reply #9 on: February 04, 2014, 09:24:03 PM »
Very good! But I contend that they fall 100% on the employee.

Employers calculate the costs of employees and then decide what they can actually pay the employee directly. ALL of the employer's costs are included in this calculation.

28 years of Cost Accounting tells me you are exactly right.
“The time is now near at hand which must probably determine, whether Americans are to be, Freemen, or Slaves.” G Washington July 2, 1776

Online Fishrrman

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Re: Iowa senator pitches retirement fix
« Reply #10 on: February 04, 2014, 11:10:02 PM »
Wait a minute....
Lemmmeeeseee here....

It's easy to jump on Harkin's proposals because he's a democrat, but tell me...

How much different are Harkin's ideas than those that G.W. Bush and other Republicans were proposing back around 2005 -- essentially proposals to create "individually owned" retirement accounts for workers as an alternative to Social Security?

I'll admit upfront I'm not that bright a guy, but I really don't see all that much difference.

What most working class people need (those who don't have 401k's or defined-benefit pension plans) is a way to accumulate savings, even if the amounts "accumulated" are relatively small. (Aside: I didn't see in the article as to whether worker contributions would be tax-deferred, as are 401k contributions.)

Of note is that the plans would be privately-run, not government run. I'll guess that the money invested would probably be limited to low-yield securites with relatively low (or no) risk.

Looks like the major distinction here is that under Harkin's plan Social Security would remain, whereas (I believe) under the Bush/Republican proposals of 2005, a system of private retirement accounts was intended to replace SS outright.

Rather than dismiss this outright, it might actually be worth some Republican/conservative interest -- and serve as a starting point for something that might actually be worthwhile after negotiations, etc...

Online Bigun

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Re: Iowa senator pitches retirement fix
« Reply #11 on: February 05, 2014, 10:28:30 AM »
Wait a minute....
Lemmmeeeseee here....

It's easy to jump on Harkin's proposals because he's a democrat, but tell me...

How much different are Harkin's ideas than those that G.W. Bush and other Republicans were proposing back around 2005 -- essentially proposals to create "individually owned" retirement accounts for workers as an alternative to Social Security?

I'll admit upfront I'm not that bright a guy, but I really don't see all that much difference.

What most working class people need (those who don't have 401k's or defined-benefit pension plans) is a way to accumulate savings, even if the amounts "accumulated" are relatively small. (Aside: I didn't see in the article as to whether worker contributions would be tax-deferred, as are 401k contributions.)

Of note is that the plans would be privately-run, not government run. I'll guess that the money invested would probably be limited to low-yield securites with relatively low (or no) risk.

Looks like the major distinction here is that under Harkin's plan Social Security would remain, whereas (I believe) under the Bush/Republican proposals of 2005, a system of private retirement accounts was intended to replace SS outright.

Rather than dismiss this outright, it might actually be worth some Republican/conservative interest -- and serve as a starting point for something that might actually be worthwhile after negotiations, etc...

My recollection is that Bush was for letting those below a certain age to direct a portion of their Social Security with-holdings into PRIVATE investment vehicles of their own choosing. I don't think what Harkin is proposing is anything like that at all!
 

Offline Rapunzel

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Re: Iowa senator pitches retirement fix
« Reply #12 on: February 05, 2014, 04:30:24 PM »
My recollection is that Bush was for letting those below a certain age to direct a portion of their Social Security with-holdings into PRIVATE investment vehicles of their own choosing. I don't think what Harkin is proposing is anything like that at all!
 

No it isn't the same at all.  You really needed to hear the way they broke this down on Wilkow Monday night - scary stuff this MyRA -  I thin JMF called it correctly yesterday - it is a backdoor SS tax increase with the same failed promises.  What Bush proposed is what I wish I could have poured all those dollars I sent to SS and my employer sent to SS into - a private account for me and my survivors which is interest bearing and actually worth something when I retired.  They are going to pay less than the rate of inflation on MyRa.. it's confiscation and if you watched the testimony of the woman who came up with this idea in 2008 she recommended they confiscate the IRA's and force them into the government owned plan.
“The time is now near at hand which must probably determine, whether Americans are to be, Freemen, or Slaves.” G Washington July 2, 1776

Online Bigun

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Re: Iowa senator pitches retirement fix
« Reply #13 on: February 05, 2014, 07:08:21 PM »
No it isn't the same at all.  You really needed to hear the way they broke this down on Wilkow Monday night - scary stuff this MyRA -  I thin JMF called it correctly yesterday - it is a backdoor SS tax increase with the same failed promises.  What Bush proposed is what I wish I could have poured all those dollars I sent to SS and my employer sent to SS into - a private account for me and my survivors which is interest bearing and actually worth something when I retired.  They are going to pay less than the rate of inflation on MyRa.. it's confiscation and if you watched the testimony of the woman who came up with this idea in 2008 she recommended they confiscate the IRA's and force them into the government owned plan.

 :beer:

Thanks! Glad someone is fully up to seed on this. I just know Tom Harkin and that NOTHING he proposes is going to be a free market solution!

Offline Rapunzel

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Re: Iowa senator pitches retirement fix
« Reply #14 on: February 05, 2014, 07:17:02 PM »
:beer:

Thanks! Glad someone is fully up to seed on this. I just know Tom Harkin and that NOTHING he proposes is going to be a free market solution!

I forgot the other part - the guv is trying to spin it that people are being ripped off by the professionals who manage their IRA's, etc., and they would be better off having the Government manage it instead - in other words they are now going after the wealthy investment professionals.    And as an aside don't tell me this sudden wanting the Post Office to act as a bank won't be a backdoor run around our banks - in other words putting all our banking under the direct control of the Government (as if the Fed doesn't already control banks more than necessary).
“The time is now near at hand which must probably determine, whether Americans are to be, Freemen, or Slaves.” G Washington July 2, 1776

Offline Oceander

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Re: Iowa senator pitches retirement fix
« Reply #15 on: February 06, 2014, 12:37:30 AM »
Very good! But I contend that they fall 100% on the employee.

Employers calculate the costs of employees and then decide what they can actually pay the employee directly. ALL of the employer's costs are included in this calculation.

It's possible that the employee bears 100% of the economic cost of payroll taxes, but I think it more likely that the employer still bears some of the economic cost of those taxes, it just doesn't bear the tax that is nominally imposed on it.  Clearly, a business treats as labor costs all of the expenditures directly related to the hiring and maintenance of personnel - employees, but that really isn't the issue; rather, what causes the economic burden to fall mostly on the employee is the different elasticities of supply (employees) and demand (employer) for labor.

An employer can readily fine-tune its response to an increase in labor costs; an employee cannot.  The simplest example on the employer's part is for the employer to simply reduce the amount of raises it was prepared to offer to its employees; employers rarely lower the compensation of existing employees - it's called a ratchet effect - but they can certainly forgo paying raises they might otherwise have made in the future.  Since the employer would have spent that money one way or another, it is economically indifferent to whether it goes 100% to the employee or partly to the employee and partly to the government.

An employer can also decide to forgo planned new hires and instead focus on improving the efficiency and productivity of the workforce it already has or of replacing human staff with automation - after all, one doesn't have to pay SS, medicare or unemployment for a robot - in response to an increase in labor costs.

On the other hand, an employee has a much harder time reacting to an increase in those costs associated with the imposition of a new payroll tax, whether nominally imposed on the employer or the employee.  Obviously, the employee is much more likely to respond to a tax imposed on him or her, because that's clear, and the indirect economic costs of a tax nominally imposed on the employer not so clear.  As such, an employee is much less likely to effectively respond to the reduction in future compensation caused by the wedge effect of a new tax (a "wedge" because the employer sees higher costs while the employee sees the same, or lower, compensation - the differential being the tax that goes to the government).

However, assuming arguendo that we have employees who understand the difference between the nominal incidence and economic incidence of a payroll tax, those employees will find it much harder to respond in a way that maintains their net after-tax income that they were earning before the imposition of the tax.  An employee who remains with the current employer and is salaried has no means of increasing his/her income other than by exceeding the higher productivity levels that employer will demand and competing more agressively with other employees for a share in the smaller pool of money available for raises.  That can be difficult for an employee to do, particularly if it means working longer hours and spending less time with family and friends.  An hourly employee faces a similar quandry and while he/she could increase his/her income by working more hours, the employer might not permit that employee to do so if it means having to pay overtime for those hours.  In both instances, the employee has a much harder time adjusting to the economic costs of a payroll tax than does the employer.

Similarly, for the employee who realizes the above, the course of action available is to look for another position with another employer that pays more than what he/she currently earns.  However, because employers are likely to have cut back on hiring plans, such an employee is going to have to compete much more aggressively with other job-seekers for the smaller number of available positions.  Further, such an employee is not going to have a strong position when it comes to negotiating compensation with a new employer, in no small part because the employer knows full well that there is a bigger pool of potential new hires available to it and will therefore be more inclined to play one off the other and to offer compensation packages that are smaller than those the same employer would have offered before the imposition of that new tax.  In that circumstance, the employer will sooner rather than later find an acceptable candidate who is willing to take the compensation offered; and those who didn't get hired will realize that they will have to accomodate themselves to smaller compensation offers than those that were made in the past.  Again, the employer can much more readily respond to the imposition of a new payroll tax than can the employee who tries to respond by finding higher-paid work.

As a result, particularly in the case of new hires, the employer will be able to shift the economic cost of the new payroll tax onto the employee, even if the tax is nominally imposed - i.e., the statute requires the employer to pay the tax out of its own pocket - on the employer.

Of course, with fewer employees expected to produce more than they're accustomed to producing, the employer's profits will also drop somewhat, so the employer does in fact bear some of the economic cost of the tax, it just doesn't bear anything even close to the tax that was nominally imposed on it.


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