Senator Jeff Merkley Champions a Cheaper 401 (k) Alternative

Where others before him have failed, U.S. Senator Jeff Merkley of Oregon is championing a new savings vehicle to boost retirement security for the American workforce. He joins a coterie of policymakers and think tank denizens who are concerned about the 68 million full- and part-time workers without access to an employer-sponsored pension.

Proposed in late January, Merkley’s American Savings Account Act would create a universal retirement plan for the private sector. The American Savings Account (ASA) mirrors some of the best features of the Thrift Savings Plan (TSP), considered one of the best-designed and lowest-cost defined contribution plans, which was created for federal employees, including members of Congress.

Let’s make it simple and easy for ordinary people to take advantage of tax-preferred plans, not something that is mostly available to people in well-established businesses and well advanced in their careers, says Merkley, the two-term Democrat from Myrtle Creek, who raised his two children in the same blue-collar neighborhood where he grew up.

ASAs would include automatic enrollment and regular contributions from employers and employees through payroll deductions. They would offer lifetime portability, require little effort from employers other than a 3 percent annual contribution and give participants fund rollover flexibility. In a reversal of the typical individual retirement account rollover, from a workplace plan to an IRA, ASAs would accept IRAs. What’s more, if an ASA participant took a job with a 401 (k), she could roll the ASA plan into the workplace pension, keeping the assets in one central location. As for fees, ASAs would likely follow the lead of the TSP, which includes a handful of index mutual funds charging 0.029 percent.

We hope to build support over time that auto enrollment makes sense, Merkley says, stressing the importance of doing something that is very simple and not a big headache for small employers just another check mark in enrolling people in payroll service.

Over the past several decades, attempts to create national or state-wide retirement plans have run aground. Take the Automatic IRA, which was officially announced in 2006 at conservative think tank The Heritage Foundation by its authors, David John and J. Mark Iwry, then senior fellows at Heritage and the centrist Brookings Institution, respectively. Both John McCain and Barack Obama promoted the proposed savings plan in their 2008 presidential campaigns. Since then, though, the Auto IRA has been submitted in every federal budget without success.