Straight Story: IRAs for all
TEXT OF STRAIGHT STORY
Tess Vigeland: Our economics editor Chris Farrell is here for the audio op-ed we call the Straight Story and Chris, you know, don’t you, that California is the center of the world?
Chris Farrell: You and your colleagues have informed of that many, many times, so yes, I’m aware of this.
Vigeland: Trends do start here and this week, we heard a proposal from a state assemblyman — and to be clear, this is just a proposal — but he’s talking about getting all California workers into a retirement savings plan.
Farrell: Tess, this proposal really grabbed my attention, because look, we know there are a lot of problems with our retirement savings system — you and I talk about it all the time — but the real disgrace is about half of the working people in this country don’t have access to a 401(k), a 403(b) or a comparable plan at work and here’s the straight story: this proposal offers an efficient solution. Even if it dies in the California legislature, I hope the idea sparks a national conversation and solution.
Vigeland: Well, let’s talk about this proposal. Give us some details on how it would work.
Farrell: If it got passed, California would be the first state in the union that all it’s workers would have access to a portable retirement savings plan. So you have CalPERS, which is the giant plan for public employees in California, and it would create an IRA account for everybody. It would make it much easier for small businesses and for low-income employees to have a retirement savings plan.
Vigeland: Isn’t this already available through something called the Federal IRA?
Farrell: Well, you and I could set up an IRA, absolutely, but we have to go do it and the other thing that really makes the 401(k) and the 403(b) really work is it’s automatic. The number of people who have come to me in April about setting up an IRA, I can guarantee you that about half of then next April are going to ask me the same question. So this way, you get that automatic payroll deduction, plus in this plan, employers could put a match.
Vigeland: What’s the role of the state legislature in creating this new option when there already are options?
Farrell: What intrigues me about this idea — and it’s really one of the better ideas I’ve seen in a long time — is to try to address that half, because that half that doesn’t have access to a retirement plan at work has been around for quite a while. The mutual fund industry has been trying to reach out, but frankly, if I were the retirement czar — Chris Farrell, Retirement Czar…
Vigeland: I will appoint you as retirement czar for the next two minutes.
Farrell: Well, I love the proposal — I first read about it from the late Robert Eisner, one of my favorite economists — which is on top of your Social Security account, we create a national 401(k). In our system, probably not going to see that, so maybe we get California to do it, New York state, which doesn’t like to be behind California, and then we end up with a federal system. Not everybody’s going to put money in, but it’s going to make it much easier for the low-income average person to save.
Vigeland: Well, there was an article in the LA Times about all this that had some pretty unhappy quotes from Wall Street.
Farrell: Right.
Vigeland: The worry is this could be unfair competition from the largest state-run pension plan.
Farrell: Yeah… so? What’s wrong with a little competition? I mean, I’m not worried about it. If Wall Street can come up with a better solution, that’s fine with me.
Vigeland: Alright, the straight story from our own Chris Farrell and Chris: I only made you czar for a couple of minutes, but how about we extend that through the weekend?
Farrell: I’m on that.
Vigeland: Cool.
Farrell: Thanks a lot Tess.
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