Clinton proposes universal 401(k)s

WEBSTER CITY, Iowa – Sen. Hillary Clinton, D-N.Y., on Tuesday proposed a new multibillion-dollar retirement plan – billed as a universal 401(k) plan with federal matching funds – to supplement Social Security for middle-class workers.

Such “American Retirement Accounts” would cost the Treasury $20 billion to $25 billion a year, making this the second-most-expensive initiative of the many pricey proposals Clinton has rolled out in her campaign for the Democratic presidential nomination. The most expensive, her plan for universal health care, would cost more than $100 billion a year.

“I am not proposing anything I don’t have a way to pay for,” she said.

“If you work hard and contribute to your country, you should have the opportunity to save and invest,” Clinton told voters at a campaign stop in Iowa, noting that “saving is hard” and the national savings rate has fallen to its lowest level since the Great Depression.

Her plan would allow all workers to open portable retirement accounts and put up to $5,000 a year in them on a tax-deferred basis. The federal government would match the first $1,000 in savings for married couples who earn up to $60,000 a year and would match the first $500 for married couples who earn $60,000 to $100,000 a year.

Individuals probably would receive less generous matches, said Gene Sperling, a Clinton economic adviser. The government also would give new tax credits to small businesses to help defer setup costs for the accounts.

Workers could withdraw some of their savings for “major life investments” such as buying houses or paying for college.

Those satisfied with their current retirement plans would still participate in those plans. Aides said the new plans would be administered largely by the same types of private firms that manage 401(k) plans, which would have an incentive to develop competitive options because of the large pool of potential investors.

Clinton would pay for the plan by freezing the estate tax at 2009 levels, rather than allowing it to expire temporarily in 2010.