Federal Retirement Account Proposal
During President Trump's most recent state of the union address, he floated the idea of creating a new federally sponsored retirement savings option for privately employed taxpayers without access to a retirement plan that offers employer matching contributions. The proposed system would be similar to the federal Thrift Savings Plan, which is the retirement savings plan offered to employees of the federal government. Under the proposal, the government would provide a $1,000 matching contribution to participants each year.
We asked two professors and authors of Tax Facts with opposing political viewpoints to share their opinions about Trump's proposal to create a retirement savings program for private-sector employees at the federal government level.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Their Reasons:
Byrnes: This proposal recognizes that millions of Americans do not yet have access to any type of employer-sponsored retirement savings program. We can't continue to overlook that fact. This new program would give all Americans access to a retirement plan option that's been given federal-government seed money to start them off on the right path when it comes to savings. We can't deny that matching contributions would provide a powerful incentive for taxpayers who otherwise would not save for retirement.
Bloink: We've already tried to federalize retirement savings for private sector workers with the Obama-era MyRA program, which phased out before Trump took office for the first time. While it was well-intentioned, this type of program is incredibly expensive to administer. We've already seen that demand for a federally-sponsored retirement savings program is extremely low among private sector workers (all of whom have access to IRAs) and that the costs far outweigh the benefits.
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Byrnes: The differences between this program and the failed MyRA program are significant. This new program could be administered alongside the new "saver's match" for low-income taxpayers who elect to participate and save for retirement--thus lowering administrative costs and making the program more workable.
Bloink: Trump has given us absolutely no details with respect to how this program would be cost effective and administratively feasible when the exact same concept was deemed unworkable less than ten years ago. Before we jump in and start developing a new program, we have to understand the details. MyRA failed primarily because demand was very low. With Trump's new proposal, it's not even clear whether the government "match" would be separate and distinct from the SECURE Act 2.0 saver's match—in other words, it's not clear whether income restrictions would apply in obtaining the match.
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Byrnes: The MyRA program was fundamentally flawed, thus it was never going to work. We aren't trying to piggyback off a failed program that ended years ago. This program would be entirely new—and we can't ignore the fact that the possible benefits would outweigh any administrative burdens associated with a new type of savings plan.
Bloink: The fact is, we do not need to develop an entirely new retirement savings program. We should be focused on improving the workability of the retirement savings options that already exist and expanding the defined contribution plan and IRA models to reach this wider audience.