In January, President Barack Obama offered a modest step forward when he ordered the Treasury to create low-cost, government-run MyRA accounts for low-wage workers who lack access to employer plans. It’s good that the White House recognizes the problem, but the MyRA really isn’t much use. Workers will have to opt in, and most of them probably won’t bother: The investment will give only a modest return and, for the low-paid, the MyRA’s tax advantages are beside the point.
A better way would be to promote auto-enroll savings plans: Instead of opting in, workers would have to opt out. As behavioral economists have shown, that would make a big difference. All the evidence says that most workers would stay with the program.
Last month, Democratic Sen. Tom Harkin of Iowa introduced legislation to this effect. It would automatically enroll workers not already covered by a retirement plan into portable, tax-sheltered savings plans run by private managers and overseen by the government.
Contributions would be set at 6 percent of pay up to a ceiling. This would build a fund which, together with Social Security, would allow a middle-income couple to retire with 80 percent of its pre-retirement income — about enough to maintain its standard of living.
Harkin’s proposal can be improved. It lets workers opt out or vary their contribution rate; in the same spirit of flexibility, savers should also be allowed to choose their own investments. Once the program was up and running, it would be a good platform for doing more. A matching contribution from taxpayers at large to workers on low incomes would be worth considering.
The main drawback of this or any similar initiative is that it would further complicate a labyrinthine system of tax preferences. Savers in the United States are already blessed with 401(k)s (traditional or Roth), 403(b)s, 457s, TSPs, Individual Retirement Accounts (traditional or Roth), SIMPLE (”Savings Incentive Match Plan for Employees”) IRAs, SEP (”Simplified Employee Pension”) plans and more — not to mention the new MyRAs — all with their own rules and conditions, which frequently defy understanding.