The idea of a Guaranteed Retirement Account (GRA) came about amid concerns over individual retirement funds, such as 401(k) and IRA plans. Those accounts make investing for retirement voluntary and many people don’t save enough through the plans as a result. GRAs would involve mandatory funding from both employers and employees, with government oversight and provisions protecting investors from market swings, proponents say.
Teresa Ghilarducci, a professor of economics at the New School for Social Research, first proposed the GRA plan, which would be monitored by the Social Security Administration, in 2007. She noted that only half of U.S. workers had access to a retirement account or pension plan, which could fall victim to market disruptions. Her theory was borne out by the 2008 financial crisis, which forced many people to use their savings to pay for immediate needs. Her idea later caught the attention of federal and state officials.
Under the GRA plan, employees and employers would each contribute 2.5 percent of a worker's income to the account and additional contributions would also be allowed. The Social Security Administration would administer the accounts and the funds would be pooled in investments in stocks and bonds. The government would guarantee at least a 3 percent return when adjusted for inflation. Retirees would receive an annuity with monthly payments.
Opponents say the plan would further expand the government’s role in retirement savings and force taxpayers to foot the bill for a bigger bureaucracy. They add that the Social Security system itself is under fire, with many younger Americans saying they don't expect to see returns from their contributions. Critics also point out that voluntary retirement plans involve starting to save early under professional guidance. However, GRA critics and proponents alike concede that plans such as 401(k)s and IRAs have drawbacks, especially when it comes to the fairness of tax breaks and the income gap between males and females.
A Question of Control
In the final analysis, whether you think GRAs are good or bad may depend on whether you think the government or the individual should control retirement savings planning. The GRA concept is still in its early stages, with several states considering variations of the plan. Similar plans include the Automatic IRA, which would require businesses without retirement plans to contribute a portion of an employee's pay to an IRA, and the Universal 401(k) plan, which would not require employer contributions. Both would be voluntary for workers.
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