Sen. Harkin's Plan to Boost Retirement Savings: Praised and Criticized

Sen. Tom Harkin's proposal to help shore up America's retirement system, which would give future generations a better shot at retiring with adequate savings, has reignited the debate over America's retirement crisis.

The plan was outlined in a report that Harkin, a Democrat and chairman of the Senate Committee on Health, Education, Labor and Pensions, released on Friday. It would:

*Create a privately-run retirement plan that would provide lifetime income benefits similar to a pension.

*Allow funds to be pooled and professionally managed.

*Be portable so workers can take their benefits with them as they change jobs.

*Enable employers to offer a benefit without taking on the risk and administrative burden that some face in offering 401(k) plans.

*Boost  Social Security payments by about $60 a month

Harkin said workers would be able to access the savings plan and pool their assets through their employers'  payroll withholding system. A board of trustees consisting of qualified employee, retiree and employer representatives would oversee the funds.

Though the trustees would be acting as fiduciaries, employers wouldn't be held to fiduciary responsibility in choosing, administering or managing the funds. Employers would be responsible only for enrolling workers automatically and making sure employees' contributions are processed.

"After a lifetime of hard work, people deserve the opportunity to live out their golden years with dignity and financial independence," Harkin said in his report. "But for most of the middle class, the dream of a secure retirement is slipping out of reach."

Supporters say the proposal is sorely needed given the current state of Americans' paltry savings for retirement. Critics charge that it doesn't go far enough to boost workers' ability to retire comfortably.

David Madland, director of the American Worker Project at the Center for American Progress Action Fund, praised Harkin's plan as a "big step" in the right direction.

But Jane White, author of "America, Welcome to the Poorhouse," mocked Harkin's assertion that his plan was "bold." In a blog for the Huffington Post, she says the plan missed the boat by failing to include reforms to drastically underfunded 401(k) plans.

She has offered her own retirement reforms. They would mandate more generous employer contributions to workers' 401(k)s -- equal to about 9 percent of pay for Fortune 500 companies and 6 percent for other companies -- and require that vesting for workers be immediate rather than waiting three months to a year to own their plans.

"The reason why the U.S. is among the pension poorest in the world isn't that not enough people are covered by a 401(k) plan, but that those who are receive a measly matching contribution equal to 3 percent of pay," she wrote. "That compares to 9 percent for Australia, 11.8 percent for Denmark, 8 percent for Hungary, 6.5 percent for Mexico, 7.3 percent for Poland and 9 percent for Slovakia.

She cited a report on retirement savings for Australians, which projected that they'd have between $500,000 to $700,000 in assets when they retire, compared with a median balance of less than $100,000 for the typical American retiree.

"To simply require all U.S. employers to set up an inadequate plan is a disservice to the American population," White wrote.

Inadequate retirement savings contributed significantly to older people's ability to hang on to their homes. An AARP study on the foreclosure crisis found that 1.5 million Americans over the age of 50 lost their homes between 2007 and 2011. Half of the households between the ages of 65 and 74 had no retirement savings; those who do saved an average of $65,000, according to the Bureau of Labor Statistics.

The report Harkin released last week had other sobering findings:

*The difference between the savings working-age Americans have accumulated for retirement and the amount they should have already saved is $6.6 trillion.

*Half of all Americans have less than $10,000 in savings.

*Just one in five working Americans will get pension income during retirement.

*In 2010, nearly 6 million Americans over the age of 65 were living in poverty.

"Retirement is supposed to be a time when you cherish your family,"  says one woman, who was quoted in Harkin's report. "For me, retirement will be the time to pick up a second, low-paying career."

Photo credit via flickr.com