State I.R.A. Plans Are Ready, if Congress Doesn’t Interfere

Now that some members of Congress have acted on this, I am not sure what the big deal is. While this "automated IRA" is nice, IRAs already exist that are low-cost and that can be automatically funded from a checking account or paycheck. While a change in laws can help nudge people to contribute to IRAs, perhaps better advertising or better education can do the same thing.

And don't forget that a married couple can contribute $11,000 combined to their IRAs (if under ages 50 and having at least $11,000 of earned income). This would be a 15% contribution for families making about $73,000 a year. They probably cannot afford to contribute that amount, so the limit is not that important. It seems that many people do not know the rules that a spouse does not have to work to be able to make contributions.

So why is usage for IRAs so low? Can the NYTimes investigate and explain please?

And today Congress did vote to block the plans. Can their be any doubt left of the real motivation of Republicans? When Democrats pass laws that limit corporations the Republicans oppose them as overrreach and preventing local control. But when they have control of the national gov't those rationales go out the window and they're all for passing laws that favor their friends on Wall Street.

For low-income people, it's rational and smart to not save:
1. People with modest retirement savings face an asset tax of 100% during retirement--not by the tax man, but by the healthcare system. Low-income people typically lose all their savings at the first serious illness. They're better off spending the money on themselves when they're healthy and then paying $0 for healthcare when they're old.
2. No amount of money they can plausibly save will make a material difference in their standard of living compared to SS alone.
3. People who face equivalent tax rates during their working years as during retirement receive almost no tax benefit from IRAs.
4. Encouraging people to plow money into IRAs when asset prices are at all-time highs is incredibly dumb.
5. People who are low-income have already demonstrated through their life choices that they don't have the temperament for participating in the capital markets. Pushing people without the temperament or the capital cushion to survive in the markets is inviting other participants to take their money.

For people with not much money, IRAs are a really terrible idea that reduces lifetime consumption. This column's author should listen to the markets instead of preaching to the choir.

Professor Thaler has a dry wit. However, exposing the illogic and hypocrisy of Republicans is not likely to affect them, and absolutely will not make them ashamed. Every explanation they offer for their polices is likely to be based on some combination of ignorance and bare-faced lies. Is there anyone who does not know that they could not give a fig about consistency with other "principles" they pretend to?

The states have not been doing a fabulous job of managing their underfunded pension plans. What makes anyone believe that when the states hire a manager, they are not going to allow excessive fees?

These plans sound like a great idea! So good in fact I would recommend that we move all public employees who now are in taxpayer backstopped defined benefit plans into them right away. That way when the inevitable crash in the overvalued market occurs our general funds will not be raided to pay for $200,000/yr pensions going to 53 year old firemen. We have a choice: fund schools, parks, roads and libraries or hand out the equivalent of a $6 million dollar taxpayer backstopped annuity to thousands of perfectly healthy middle age (mostly white) men.

Glad to see a writeup on the issue, to which most of the people who might benefit are oblivious.

There is no rational reason for Congress to defeat this initiative - it can benefit smaller employers by reducing the costs (and administrative duties) of being able to offer a retirement plan to employees. It sets us an IRA which can be used through job changes for many. It is simple. It eliminates employer fears of choosing the wrong plans and being sued for failing to offer optimum selections. It addresses the lack of retirement savings of far too many workers in small businesses.

The only reason for opposition has to be money - worries of for -hire plan administrators who figure they will lose business - tho' even that I hard to comprehend.

Are Republicans capable of seeing the dual ironies in the "party of low regulation" opposing a program because it won't be regulated enough, and the "party of states' rights" opposing programs created and managed by the individual states?

President Clinton signed the Congressional Review Act into law in 1996 - not obscure, just infrequently used.

The states don't really believe in this. If they did, they would have selected an option that would avoid ERISA preemption litigation. They could have accomplished savings directly through supplemental withholding taxes. Most states active in this space already have a state income tax - with supplemental withholding capability. But no. Let's have another ineffective employer mandate - which can be avoided by adding a voluntary IRA without automatic enrollment. Way too easy to avoid! Way too wasteful of a design!

Best parts about using supplemental withholding taxes:
Workers have a "last clear chance" to either make an IRA contribution or elect a refund when they file their tax return,
States control deductions - not employers - states can unilaterally change deduction amounts at any time,
Individuals can prospectively change state withholding at any time, and
This relieves the state of all other responsibilities so it can focus all efforts on obtaining the best possible product - leveraging economies of scale.

So, states and workers have control - not the employer.

States could have avoided all legal challenges. It could have been up and running years ago (CA passed its law in 2012, but just delayed the start of deductions until 2019).

What waste - because states want employers to take the blame for reductions in take home pay.

The real objection to state IRAs is that bankers, investment advisors, and companies that run 401(k) schemes see them as unwelcome competition. State-run plans will cut into the highly lucrative exorbitant fees they skim off the top of their funds and collect from various other "services." Since these business have wisely invested in campaign donations, Republicans in Congress will of course make a priority of serving their needs above everyone else's.

Of course, it would not sound very good for Republicans to admit that they're opposed to state-run retirement plans because they would deprive Wall Street donors of profits from gouging consumers. Hopefully they'll keep a straight face when they express concern about "inadequate regulation."

"States' Rights" is just another Republican term of art. It actually means the right of states to enact programs that advance conservative ideology and domination, and enrich Republican donors. Things like "right to work" laws that eviscerate unions, and other ALEC legislation through which the Koch Brothers realize their vision of libertarian feudalism. But when a state enacts liberal programs or threatens the profits of Republican donors, it's time for the strong arm of federal government to whip the renegade state legislature into shape. It's not hypocrisy, as that's another conservative term of art. By definition, only liberals and Democrats can be hypocrites.

To discover a politician's true motivation, just follow the money.

Social Security is a pension plan (yes it is, ask any economist) that was designed to be a safety net for people (mainly blue collar workers) who could not save or invest money because of low wages or disruption of employment due to economic downturns. Social Security taxes are invested in US Government securities because they are the safest and will guarantee that their will be money in the fund when a person retires. The Government securities do not earn a great amount because they have little risk. And when it comes to a safety net, keeping risk low is demanded.
Although it's original intent was to provide security for older Americans, the program has expanded far beyond that. Some expansion good, some bad. And of course both Republicans and Democrats have robbed the SS fund for many decades in order to fund their pet projects.
However, the program was never meant to be the only retirement plan that an individual should have (remember it was meant to be a safety net). Since people do not like to save (a problem of delaying gratification), it would be worthwhile to design a program that pushes people into the habit of saving. Buy this takes money out of the business man's pocket. More saved, less spent.
Another attack on the Working Class by the Republican party.

Good for regular folks, no extreme advantage for the rich. Of COURSE the GOP will oppose it. That's their entire reason for existing, other than keeping women and minority's in their proper, God-given PLACE.

Mr. Thaler's piece offers ample evidence, as though any were needed, of the depraved political, intellectual and moral bankruptcy of the Republican party. Here is a program about to launch in a small number of Democratically-controlled states to help people save for retirement, so obviously a pressing national need. In principle the automatic IRA is far less compulsory than Social Security, from which opt-out is impossible.

www.endthemadnessnow.org

The GOP stance is but one more example of Party determination to hurt ordinary, hard-working Americans driven by parisan spite that lacks even an ideological rationale. States rights and individual responsibility mean nothing when the opportunity arises to poke Democratic initiatives in the eye. Oh, how Republicans must hate people. Make 'em sick and keep 'em destitute, especially during their "golden" years.

www.endthemadnessnow.org

My personal experience suggests that retirement saving will be safer in the American commercial market than under a Federal Saving plan like Social Security. 1) Social security takes what ever it wants from your paycheck when ever they want it. You have no choice. 2) The inflation measure used to adjust either totally political or biased towards memory chip prices. 3) Social security is not designed to earn money but apparently is designed to support the government financial institutions. 4) Federal Social Security changes the rules whenever they want. Example: There was a plan offered for decades by Social Security that would let my wife afford to retire at age 66, spend some time with me before I die and still have a relatively secure retirement. And a few years later, well after I retired, they changed their mind. And my wife and I are out tens of thousands of promised retirement funds, funds that were once upon a time backed by the authority and financial power of the United States Government.

Wait. Let me get this straight. The individual states are working on retirement plans that may actually help people save for their retirement years, but Republicans quite possibly may deny the states the ability to create such plans because, "they may be not well regulated." Let's see, the states come up with a plan that will help people, but Republicans in Congress want to deny the states the ability to do that. OK, I got it. If the states come up with a plan to help people, then that's bad because those plans need Federal regulation, but if Congress decides certain things that will actually hurt people (healthcare; transgender bathroom use, just to name two) should be left to the states without Federal regulation, then that's OK. Wow, that's a really good trick. If it's something good for the people, let the national government regulate and eventually screw it up, but if it's something that hurts people, let it be left to the states so that the states can continue to hurt people. No wonder America can't make any progress with these Republican buffoons in charge. They all have one foot nailed to the ground, and their policies reflect that.

"Odd" that Republicans are hypocritical? Since when?

My single question is who funds the legislators who oppose state IRAs? My guess is lobbyists for individual investment advisors.

Other than cutting taxes for the wealthiest Americans and pushing agendas that benefit corporate profits, what does the Republican Party stand for? How can nearly half of American Voters believe that the Republican party represent their best interests? How can Republicans gain control of all three branches of government? Is the reason Citizens United and McCutcheon? Or, maybe that B. Clinton's centrist strategy to win elections is a failure. After all, why take the middle position when you can go all the way to the right. The Democratic Party needs to go back to the days of faithfully embracing the left base of the party which FDR created.

Thaler tries to call out Republicans as if they had consistent beliefs on issues such as deregulation or state vs federal control. The fact is that they are acting on pure special interest grounds, which inexplicably he never mentions--in this case the financial services industry, which opposed this program in California and elsewhere. There's no pretence of Republican policy here, they're just doing the bidding of the industry. The desperation of the effort is because once this starts, it will be difficult to dismantle, since who can be against retirement savings? It would be more effective to document the crass special interest nature of this effort than to argue ideology with the Republicans.

"[H]ardworking Americans could be forced into government-run plans,” is the patently bizarre justification the Republicans use, completely ignoring the fact that the program is optional.
Their real objection, presumably, is the program would be too successful, would allow employees to keep more of their pension contributions and would undercut the perennial Republican meme that the government (even state government) can never do anything right. In Wall Street We Trust, is their motto.

Thaler is absolutely correct that automatic enrollment is critical to increasing participation rates in retirement plans. Any of the major 401(k) providers (e.g., Fidelity, Vanguard, etc.) will tell you that. A little history is in order. 10 years ago, several proposals were put forth by retirement policy experts that called for a national IRA or 401(k) plan that included direct deposit, automatic enrollment and low cost administration. Notwithstanding broad-based bipartisan support, these proposals gained no traction in Congress, then controlled by the Dems. So efforts turned to the states, where after a decade of hard work, substantial progress has been made. So Congress, now controlled by the Reps, is trying to undo that good work. As a result, half of American workers do not have easy access to a retirement plan and instead rely solely on Social Security. This is frustrating, to say the least. When it comes to retirement issues, Congress has been broken for a long time. As we like to say in Boston, "Do your job."

The problem with low retirement savings is not lack of a plan; it is lack of employee income. There are already hundreds of ways for low income employees to contribute small amounts of money to IRAs through direct deposit plans and automatic deduction. What the state plans and ones like myRA do is add to the burden of the small business and interject a government administrator. The author is correct that benevolent paternalism (cleverly called nudging) does get more low income people initially signed on, but he fails to note that in over 80% of the cases the low income people quit and withdraw their savings within in two years because...they don't have enough income and need the savings.

Believing that forcing an employer to offer a government plan that requires an employee to opt-out will increase savings from low income workers is like forcing spoons to be provided to people during a famine – the problem isn't the tool used, it is the lack of the resource.
PhD Cognition & Behavior

An automatic IRA plan, state or federal based, should be to the advantage of any government. If a worker saves and invests in a low cost plain vanilla S&P fund, they will better be able to care for themselves which should lighten the need for the entitlement programs Republicans hate to fund. Yes, Wall Street will get something out of it but costs can be a few tenths of a percentage point. Most IRAs can be rolled over from one plan to the next, so if a worker moves from one state to the next it should be able to move with him if he wants, or as is the case now he can chose to leave it with his old employer/state plan. Multiple plans are no more a problem than multiple bank accounts. I have two Traditional IRAs (one a rolled over 401K) and two Roth IRAs. Discount brokers charge me nothing to hold the accounts and when I want to roll one to a different broker, I fill out the paperwork with the new broker and they do all the work of moving the stocks, bonds and/or cash.

I thought the republicans didn't like "regulation."
Sounds like a good state plan to me.

As long as it's not mandatory I'm for it. If it's mandatory it's just another "benefit" that cuts into the direct pay. I rather be able to choose a higher hourly wage or that of numerous benefits that cut into that wage. If I opt for parental leave, great, if I opt for sick time, vacation time.. great. However it should be my choice to opt in or out of these benefits. I rather the higher hourly wage be paid upfront, then I will decide where to allocate those funds. Some into a brokerage account that I manage myself, some in a savings account, some in checking. If i need a day off I don't get paid, but the previous days I've worked I got paid higher than what I would initially get if I opted in for sick leave. The same applies for all these various benefits. State I.R.A plans, if mandatory will just cut into the direct wage; then it'll feel like you are getting paid less upfront and people then will demand higher pay..while also continuing to demand more benefits. Automation can't come soon enough.

State IRA plans are a bad idea. We know that by the way state 529s work.

The 529 is a way to save for college and get federal and state tax breaks. But each state only allows state tax breaks from those 529 program that it sanctions. Sanctioning means the state got some kind of kick back from the program.

That means that people who move or expect to move from one state to another are at a disadvantage. They stop receiving the state tax benefit of their 529 by moving to another state. At the very least this means opening and managing numerous 529 accounts each time they move. The state sanctioned accounts are usually managed by companies with clunky websites and high fees.

The saving for retirement should be separate from taking a federal or state tax deduction. Anyone who saves for retirement through any program should be eligible the full tax benefits. It is unfair and inefficient to deny some people the tax benefits and force them into complicated savings programs.

A good example is the Thrift Savings Plan for federal employees. Lowest cost program in the United States with simple index and lifestyle funds. It works.

These are admirable efforts by some states. The challenge for workers and for employees who operate in multiple states is that we will end up with a patchwork of regulations and plans...which only creates difficulties for all. A standard national approach which accomplishes this would be best.

You may want to have a followup article on this plan by the US Department of the Treasury:

https://myra.gov

"The House has already passed a resolution of disapproval revoking the new rules, but the Senate has not yet taken up the issue. This is odd, considering that giving more power to the states is a traditional Republican mantra, often mentioned as part of plans to replace the Affordable Care Act with local alternatives."

This isn't odd at all. Republicans are cynics to the core. They want less government when it suits them, and more government when it suits them. Their only ideology is power and greed.

Sounds like the Congressional Review Act is a means of allowing the GOP to want federal control when it suits their owners (the financial institutions and large corporations) and it wants states' rights when those are advantageous.

This will give employees of smaller firms more opportunity to create tax-deferred savings and should be a no brainer. Unfortunately, this isn't what Wall Street wants.

The state IRA's are just another product to put money in the hands of the finance industry. What is needed is a state annuity program that guarantees people income in their retirement. That's something even those of us who have IRA's can buy into when we retire.

Unfortunately the Republican Party has attracted a significant number of anarchists who prefer an ungovernable and ungoverned nation. They are consistent only in fighting government involvement in things that help working people.

The days when people stayed at the same company for 20-30 years and then retire with a pension are gone. That's not necessarily a bad thing. But that does mean that the rules need to change.

Social security isn't going to be enough. People need a safe way to save for retirement that's easy to contribute to. In the absence of employee sponsored 401k's state IRA accounts make sense.

Imagine how much more secure retirement would be if people could use a mixture of state IRA accounts, personal IRA accounts, 401k accounts, social security, and personal investments. The more options we have that are set up to be automatic with very little help from us after we initially sign up the better.

We just need to make sure that these accounts are managed by fiduciaries. Also, we need to make sure that the states cannot touch the funds for any reason.

Thanks for highlighting this. Time to contact our representatives to support this plan.

I am the sole employee of a tiny nonprofit. It took some effort but I found a company that would allow us to open a 403(b) plan for a single employee. For anyone in small nonprofits, contact Valic.

I am surprised that more detail wasn't provided on the selection of investment options, particularly since California's two huge public employee pension have underperformed the markets.

Again I wonder, if Republicans care so little about their base, why does the base continue to vote for Republicans.

Sometimes voters do get what they voted for and elections always have consequences...

This is simply a way for the Republicans to make sure that money goes via Wall Street so that their donors can get a cut. All of the arguments presented against the plan are specious.

You make a sound argument.