Obama’s Retirement Security Proposals Slammed By Advocates As Far Too Little

Retirement security experts parsing President Obama’s State of The Union speech and his follow-up address Wednesday on retirement policy at a U.S. Steel plant are frustrated that the White House is proposing to do too little for America’s oldest generations—whose savings fall trillions short of what’s needed to maintain their current living standards.

In Tuesday evening’s State of The Union, President Obama announced that the Treasury Department would expand the U.S. Savings Bond program to allow people to create their own retirement accounts—called MyRA—for up to $15,000 in post-tax income. The executive branch initiative was part of Obama’s larger call to help the middle class.

“And if this Congress wants to help, work with me to to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans,” the President said, saying everyone should have access to “an automatic IRA on the job, so they can save at work just like everyone in this chamber can.”

On Wednesday, in Pittsburgh, Obama expanded his remarks in an address that the White House promoted as a retirement policy speech. Obama, addressing unionized U.S. Steel workers at their Pittsburgh plant, said the goal was fourfold: creating new jobs, investing more in training and education, and making “sure that hard work pays off.” He ended his remarks, saying, “This is the opportunity agenda that’s going to restore some sense of economic security in this 21st century economy.”

There are 75 million Americans without access to workplace savings programs, White House officials said this week, emphasizing that this U.S. Treasury Department version of a Roth IRA—where after-tax income is invested—was a good first step for them.

But liberal retirement security experts have spent the week trying to put the best face on what’s at best a disappointment because Obama did not even mention the big picture—that the financial floor provided by Social Security has been shrinking compared to rising costs of living since the mid-1980s, to say nothing of the aging baby boom generation’s inadequate retirement savings. That’s because most people lack pensions (deferred paydays) and private 401K plans haven’t filled in that gap in most cases.

“It’s not plausible that Social Security is going to provide an adequate retirement for people earning the median or higher any time soon,” said Dean Baker, Co-Director, Center for Economic and Policy Research. “If we oppose measures that can make it easier for these people to save and reduce their costs, then we are telling these people we don’t want them to have enough on which to retire. I can’t see any reason not to support something like this and then try to take away the $15,000 cap.”      

The big fear among many of the policy advocates who have been trying to get Congress to reframe the retirement security debate is that Obama’s MyRA proposal may give the White House political cover for doing nothing substantive.

“In the context of an administration that has been tone death on Social Security and a Congress, especially the Republicans, who have been worse, the MyRA proposal, automatic IRA proposals, strike me as distractions from the real issues,” said Syracuse University Professor of Social Work Eric Kingson, who also is co-director of Social Security Works, the national coalition calling for expanding Social Security.

The President did not discuss the real problems and possible solutions for a nationwide crisis where tens of millions of people will slip toward poverty, he said. The upcoming generation of retirees will need at least $6.6 trillion dollars more than they now have saved, a new estimate by Boston College’s Center for Retirement Research found.    

“Many Americans who have worked hard and done most things right, will be facing very difficult retirement years,” Kingson said. “Instead of putting forward the MyRA proposal and making some noises about auto-IRAs, I wish the President simply focused on the facts about the impending retirement income crisis, or acknowledged, along with his MyRA and auto-IRA rhetoric, that these proposals can, at best, only make a small dent in the larger problem.”

On listserves this week, where experts like Kingson were parsing the pros and cons of the MyRA plan, the mood was flat. It would help some people or could be an opening for a larger public sector solution, some said. But others said it was little more than a “feeder”  to Wall Street investment houses when the accounts got big enough.

“When the financial services industry doesn’t actively oppose something, it usually means it secretly embraces it,” said Monique Morrissey, an economist with Economic Policy Institute. “I think we can assume the industry views this initiative as a welcome distraction from serious reform efforts, or worse, a feeder system for high-fee IRAs.”  

Others said that Obama was doing essentially the same the same thing that he did with Obamacare, giving up a public sector solution like Medicare-for-all for what instead is a mostly privatized solution. That was especially harmful because also shifts the political discussion away from proposals to modernize Social Security, which is what Senators like Massachusetts’ Elizabeth Warren and Vermont’s Bernard Sanders have pushed.

When reviewing a White House transcript of Obama’s remarks in Pittsburgh, Kingson became more discouraged. Obama said, “If you’ve worked hard all your life, you deserve a secure retirement.” In response, Kingson noted, “Yes, but he is not proposing anything that can move the needle in a serious way (just rhetoric).”

Obama told steel workers, “Let me tell you something, if you work 38 years, at the end of it you should feel like you’re going to retire with some security.” Kingson’s reply: “Yes, and calling for the chained CPI [consumer price index, which slows the growth of future Social Security cost-of-living increases] and not deep-sixing the Bowles-Simpson Social Security proposals [Obama’s commission that called for cuts] undermines that security. Moreover, giving Simpson a bully-pulpit to make groundless, nasty and uncivil charges about greedy geezers does not increase the sense of security (or dignity of the old).”

“A Social Security check is critical, but oftentimes that monthly check, that’s not enough,” Obama said. “So what I’ve asked Congress to do is work with me to give more people more retirement security.”  

“Great idea, but this doesn’t do it,” Kingson commented, then citing substantive reforms that Obama did not mention. “How about refundable tax credits for retirement savings for low- and moderate-income workers paid for by reducing pension-related tax benefits for the well-off… I suspect he would like this but this is not what he is proposing. His proposal is little more than distraction that can be used to justify his support for cutting Social Security with a chained CPI.”

The White House will make its real intentions known for the future of Social Security when it submits it’s proposed 2015 fiscal year budget in several weeks. That document will contain future cost-of-living increase proposals—and how they are to be calculated. Last week, Jason Furman, chair of the White House Council of Economic Advisers, was asked by the Christian Science Monitor if the chained CPI would be in 2015 budget.

“You’re going to have to wait and see,” he replied, although in last year’s White House budget, which anticipated shifting to the chained CPI, that was estimated at cutting $230 billion from Social Security payments over the next decade.      

Until then, the Treasury Department’s MyRA is not really a retirement savings plan but a nest egg that can be used during people’s lives for home downpayments, health expenses, tuition or even a vacation. That may be helpful, but it’s nothing to retire on.

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