(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 Bureau data.
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 company.
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."