By now, we should know to ignore just about everything Marco Rubio says about money. His tax-reform plan, as my colleague Jordan Weissmann puts it, is “a grotesque gift to America’s plutocrats.” He won’t touch his mom’s Medicare and Social Security, but would throw his own generation under the bus by raising the retirement age for those under 55. As for the Florida senator’s personal finances … well, no need to revisit that mess.
But Rubio has one very good, potentially very effective financial idea—one that he barely discusses. That would be opening up the federal government’s Thrift Savings Plan to Americans who lack a workplace retirement plan of their own.
Here’s why doing that—or setting up a similar system for nonfederal employees—is a great notion. The Thrift Savings Plan, or TSP, is the defined-contribution employee retirement savings plan that the federal government offers to its employees. If there is a better defined-contribution plan—that’s wonk-speak for your 401(k) or 403(b)—out there, I don’t know it, and neither do any of the experts. David John, now deputy director of the Retirement Security Project at the Brookings Institution, noted a decade ago, the “TSP is one of the most successful retirement investment vehicles ever created.” Rubio almost certainly agrees. When he spoke about the idea in 2014, he said:
It is one of the most efficient savings plans in America. It charges fees which are a fraction of those in most private defined-contribution plans, allowing beneficiaries to save more. So the twisted irony is that members of Congress, who are employees of the citizens of the United States, have access to a superior savings plan, while many of their employers, the American people, are often left with access to no plan at all.
All true! The TSP stands out thanks to its simplicity—there are only a few basic investment choices—and its low cost. Annual fees run about 0.029 percent, which translates to $2.90 for every $10,000 invested. Now let’s compare that with your retirement plan. According to financial research firm BrightScope, every year employees at large private companies pay about 0.5 percent of their investment in fees, and employees of small businesses can pay more than 1 or 2 percent annually.
Add to that the headache of choosing between 10 or more investment choices, with a majority of private-sector plans offering 16 or more options. That sounds great until you realize that just makes it harder for savers to appropriately diversify their investments. Many won’t make a choice at all. Others will simply check off every box. (Seriously.)
One other thing stands out about the TSP. It’s an actual plan. According to the Department of Labor, about one-third of all workers lack any access to an employer-provided retirement plan. Opening access to the TSP would give them one. Because if you’re one of those workers, your chances of actually contributing to a retirement account you set up yourself are about 1 in 10. And, no, Social Security is not enough. It only replaces about 40 percent of earnings, according to the Congressional Budget Office. (And, yes, this explains why raising Social Security benefits is at issue in the Democratic primary.)
Taken all together, Rubio’s suggestion is such a good idea that it actually has some bipartisan support. The left-leaning Center for American Progress has promoted versions of a TSP for all for the better part of a decade. At the right-wing American Enterprise Institute, economist Andrew Biggs, best known for denying there’s much of a retirement savings crisis at all, blogged his support in 2014, writing, “For employees who aren’t offered a pension at work, the government could allow access to the Thrift Savings Plan.”
Meanwhile, the groups that oppose opening up the TSP basically demonstrate its bona fides. The Investment Company Institute, the lobbying arm of the mutual fund industry—whose offerings fill up your 401(k)—is against it. Romina Boccia, a deputy director at the right-wing Heritage Foundation, also opposes the move. Her reason? “The biggest risk is that adding millions of Americans to the TSP would crowd out private-sector retirement accounts. The private-sector retirement industry is very innovative, constantly improving its services at lower costs to employers and employees.”
Again, private-sector plans cost savers multiples of the TSP offerings. This isn’t innovation. It’s highway robbery.
For American savers, every penny counts. More than three decades of encouraging do-it-yourself financial planning hasn’t turned the United States into a nation of born-again savers. Instead, it’s left us on the verge of a retirement crisis. According to Fidelity, the average 401(k) contains $84,400. And those are the people who have plans. A Government Accountability Office study released last year found 29 percent of people over the age of 55 didn’t have access to a retirement plan and lacked savings for their postwork lives. Financial experts say most of us need several hundred thousand dollars—or even a million bucks—in order to not risk outliving our savings.
Letting more people invest in the TSP or a TSP-like plan can’t solve this issue, but it can certainly improve the situation. And where is Rubio? He’s now M.I.A. on the issue. When I reached out to his press representatives this week, a spokesman pointed me to a mention of his support for opening up the TSP in a publication from his Senate office titled “Reclaiming the American Dream” (check page 46!). The senator hasn’t mentioned the idea once at a Republican primary debate. “The proposal remains a work in progress,” the spokesman said in an email.
In the meantime, someone else stepped forward. Last month, Democratic Sen. Jeff Merkley of Oregon introduced a bill that would set up a system similar to the TSP for Americans who lack access to a workplace retirement plan. The plan created by the American Savings Act wouldn’t offer an employee contribution match like the federal government gives its workers, and it would cost savers 0.2 percent annually. That’s more than the TSP charges but still significantly cheaper than almost any other plan out there. And for a lot of Americans without a savings plan, it could be a life-improving prospect.
Merkley’s initiative also addresses one substantive criticism of opening up the TSP—that the addition of people who don’t work for the federal government would likely raise the cost of the plan to current employees. In Merkely’s legislation, federal employees keep their own plan, while those who need one get a plan too.
We know you like this idea, Marco Rubio. It’s time to say so again.