Oregon Senator Unveils 401(k) Alternative

On a call Thursday afternoon, Sen. Jeff Merkley (D-Oregon) introduced a proposal to strengthen what he said is the country’s increasingly strained retirement system. A constellation of factors—the number of jobs the average American holds over a lifetime; fewer pension plans; and growing dependence on Social Security benefits—mean more Americans are facing a serious retirement savings shortfall, he said.

Merkley has introduced The American Savings Act, which would establish a new universal savings account that would give all working Americans without a workplace-based plan access to a retirement account modeled on the Thrift Savings Plan (TSP). The government program is a retirement savings and investment plan for Federal employees and members of the uniformed services.

Workers would be given personal automated saving plans, Merkley explains, with an auto enrollment at 3% of salary. Contributions would be defaulted into a low-fee, lifecycle fund that automatically adjusts investments based on a worker’s age. At retirement, savings would be converted into a stream of income that could not be outlived. The plan could be used for rollovers from myRAs, the federal government’s new starter retirement savings account.  

Workers would have options to raise or lower the initial contribution rate, or opt out altogether. “Auto works,” Merkley noted, adding that his program would enable many more people, whether full-time or part-time workers, in small companies or large, to participate in a retirement savings plan. “Under this legislation, every employee would have access to a retirement account,” he said. Employees who change jobs would be able to save consistently, and those who are self-employed would also have access to a universal, simple and portable retirement savings option.

The program would be positive for small businesses, Merkley said, because it would allow them to offer their workforce an affordable savings plan without any assuming the administrative or financial responsibilities associated with a 401(k) plan.

David Madland, senior fellow of the Center for American Progress Action Fund, cited the country’s looming retirement crisis. “The employer-based system has always had some holes, but now they are gaping,” he said. More people than ever before have less traditional employment situations, he said, mentioning what some call the “gig economy.” Coverage for retirement has dipped over the last decade because of the transition from defined benefit (DB) to defined contribution (DC) plans, and the median retirement account balance is a wholly inadequate $14,000.

The American Savings Account would use what are clearly best practices based on research and behavioral economics: auto enrollment; low fees; sensible investment choices (primarily index funds); and options for lifetime payouts. The account would be modeled on the TSP, though would not be part of that program. “The vision is to lay out and utilize the vision of TSP,” Merkley said. “We would mirror the structure and build on what has been done, making it as simple as possible an undertaking.”

The Center for American Progress Action Fund also released a report Thursday that outlines how this universal savings option would affect workers.

Merkley’s proposal has the support of AARP; Main Street Alliance, a small-business advocacy group; and Center for American Progress Action Fund, a progressive research and policy group.