(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Mark Miller
CHICAGO May 15 When Republican politicians talk
about how important Social Security and Medicare have been for
their parents, it's time to grab your wallet. These stories
usually precede a proposal to cut benefits under the guise of
"saving" the programs - and Senator Marco Rubio of Florida tore
a page from that playbook this week.
Rubio, a likely 2016 presidential candidate, began a speech
on retirement policy by recalling the importance of Social
Security and Medicare to his immigrant parents. "They never
earned enough to have significant savings or a pension," he
said. "It was Social Security and Medicare that allowed them to
retire with comfort and security."
Rubio then called for cutting Social Security benefits via a
higher retirement age, and shifting healthcare cost risk to
seniors by "voucherizing" Medicare. Both are standard-issue
ideas for any Republican who wants to be taken seriously by the
party these days. And both would spell disaster for an aging
America already facing a huge shortfall in retirement resources.
But then Rubio did something bipartisan: He called for a
government-sponsored 401(k)-style retirement savings option for
working Americans who don't have such a plan. That sounds a lot
like a government solution to one of our most pressing
retirement security problems: the relatively low - and declining
- level of access to 401(k) plans. Just 52 percent of U.S.
private-sector workers had an employer-sponsored retirement plan
of any kind in 2011, down from 62 percent in 2001, according to
a National Institute on Retirement Security analysis of Census
Rubio called for opening up the federal Thrift Savings Plan
(TSP) to private-sector workers. That's an idea Democrats and
progressive think tanks have proposed, since the TSP might just
be the country's best-run defined contribution plan. The TSP
boasts very low costs, a short and easy-to-understand set of
investment choices and options to convert savings into an
annuity stream at retirement via a third-party insurance
Rubio made the case this way: "The twisted irony is that
members of Congress - who are employees of the citizens of the
United States - have access to a superior savings plan, while
many of their employers - the American people - are often left
with access to no plan at all."
Well said. And the TSP isn't the only government-sponsored
retirement solution that has been proposed. The Obama
Administration is rolling out MyRa, a starter retirement account
that would allow participating employers to funnel worker
contributions into low-risk investments in an account held at
the U.S. Treasury Department.
And the National Conference on Public Employee Retirement
Systems, a trade association for public-sector pension funds,
has been pushing a concept called Secure Choice Pension, which
would be a low-cost government-sponsored retirement savings
vehicle that states could offer to private-sector workers who
don't have workplace plans. California, Massachusetts,
Connecticut, Illinois, Oregon and Colorado are considering it,
and Maryland created a task force this week to study the issue.
The TSP is appealing because of its ultra-low fee structure.
Its average net expense ratio last year was just under three
basis points (a basis point is 1/100th of 1 percent). Private
sector 401(k) plan costs don't come close to that: The average
expense ratio on mutual funds in those plans was 63 basis points
in 2012, according to the Investment Company Institute.
Fees are a critical factor in retirement saving. An analysis
by the Securities and Exchange Commission found that every 50
basis points charged to a mutual fund reduces a $100,000
portfolio's value by $10,000 over a 20-year period.
Rubio's arguments for whacking social insurance programs
deserve to go nowhere. But his pitch to open up the TSP should
appeal to progressives interested in cutting the cost of
retirement saving, and to conservatives who want to stress the
importance of individual responsibility.
"It's a great step and shows there really is potential for
bipartisan solutions to fix the private sector retirement
system," says David Madland, managing director for economic
policy at the Center for American Progress. "Many people
acknowledge that the private system is broken and that we can do
a lot to improve it."
For more from Mark Miller, see link.reuters.com/qyk97s
(Follow us @ReutersMoney or here.
Editing by Douglas Royalty)