Retirement savings are a key to building wealth, strengthening the middle class, and building a greater measure of financial security for Americans. Current policy rewards employers, financial institutions, and workers for saving, but millions remain outside of the savings system and a crisis of retirement income insecurity looms. The Aspen Institute Intiative on Financial Security (Aspen IFS) held a congressional briefing today on Capitol Hill to examine the policies that could be advanced to enable all Americans to achieve lifelong financial security.
At the event, a bipartisan pair of Congressmen offered their views on how to best promote savings in a manner that works for all Americans. The Congressmen’s remarks highlighted the fact that leading thinkers on both sides of the aisle agree on the importance of starting to save earlier and increasing the opportunities to save. Additionally, the Congressmen’s calls for using the tax code to strengthen retirement savings come just days after House Committee on Ways and Means Chairman Dave Camp (R-MI) released details of his tax reform proposal. The proposal had included some reductions to retirement savings tax incentives.
Rep. Joe Crowley (D-NY), Vice Chair of the Democratic Caucus, expressed support for bills introduced in the current Congress that would create Automatic IRAs (H.R. 2035) and expand the Saver’s Credit (H.R. 837). “Auto-IRAs” would allow workers to automatically save for their retirement with a deduction from every paycheck – the type of deduction that many workers with 401(k) plans currently use. Expansion of the Saver’s Credit would provide savers with a tax credit of $500 if they saved $1,000 for retirement. Congressman Crowley then announced his intention to introduce new legislation that would create a new savings program called USAccounts that would provide every newborn with a bank account in his/her name seeded with $500. Describing his rationale for the USAccounts proposal, Congressman Crowley said, “My legislation will give every American child, regardless of their economic background, the opportunity to start their financial future on the right foot.”
Rep. Tom Petri (R-WI) emphasized that for as long as Americans continue to not save enough – for retirement or for other financial goals – “we need to continue to talk about policies that would encourage greater savings.” In doing his part to continue the savings conversation, Congressman Petri also chose to discuss Automatic IRAs and children’s savings accounts. Automatic IRAs, he noted, had been endorsed by the conservative think tank The Heritage Foundation. Children’s savings accounts, on the other hand, seemed to serve a valuable role in teaching financial literacy to children. Seeing the amount in their bank account grow over time would be a lesson in the power of compound interest.
Experts in retirement policy joined in acknowledging the shortcomings of current policy and agreed that there were actionable steps that could be taken to make a significant difference in Americans’ retirement security. This sentiment was captured in Judy Miller’s, Director of Retirement Policy at the American Society of Pension Professionals & Actuaries (ASPPA), statement, “We know the key to promoting retirement security is expanding workplace savings, and Congress could take some modest steps that would make major strides in accomplishing that.”
Mark Iwry, Senior Advisor to the Secretary of the Treasury & Deputy Assistant Secretary for Retirement and Health Policy, described a step taken by the Obama Administration that is designed to enhance retirement security – My Retirement Account (myRA). myRA is a program of the Department of the Treasury that comes at no cost to employers and employees and does not compete with other types of employer-provided savings plans. With its features of permitting small contributions and guaranteeing a positive rate of return, it has the potential to instill a lifelong habit of saving for workers and ultimately “graduate” them to savings products offered by the private sector.
Eric Stevenson, Senior Vice President & Chief Sales Officer at Nationwide Retirement Solutions, described how financial security for Americans can be achieved through the strengthening of the “three-legged stool.” Nationwide sees “increasing opportunities to educate America’s workers to take a balanced approach through a combination of personal savings, defined contribution and defined benefits to sooner and save more.”
The seemingly distinct focuses of the event were tied together by Jeremie Greer, Director of Government Affairs at the Corporation for Enterprise Development (CFED). Child savings and retirement savings are both pieces of the greater habit of lifetime savings; it is lifelong savings that truly creates financial security. “I would say that some of the solutions [to the problem of getting people to save when they are earning an income] might be in thinking about how we are moving people towards saving early in life.”
The event marked the release of Aspen IFS’ newest publication – Child Trust Funds: Renewing the Debate for Long-Term Savings Policies. The Child Trust Fund was a program of the British government that endowed each child at birth with a £250 voucher to open a savings account. Lisa Mensah, Executive Director of Aspen IFS, remarked that this type of child savings account, similar to the USAccount plan, along with Automatic IRAs and a robust Saver’s Credit form a savings system that “promotes the habit of saving early and makes saving through the working years easy and rewarding.”