The coverage of Clinton’s retirement proposal has largely missed one of the big advantages of the system that she is proposing. Clinton would make a low-cost 401(k) available to every worker in the country, modeled on the federal employees’ Thrift Savings Plan. According to estimates from President Bush’s Social Security Commission, as well as other sources, the fees on such a system would average just 0.3 percent of the money in the accounts. This compares with an average annual fee of 1.0 percent charged by private sector financial firms. The Government Accountability Office found that some higher cost firms charged more than 1.5 percent of the money in the accounts in annual fees. Senator Clinton’s system could also allow workers to turn their accumulation into an annuity (an annual payment that continues for life) at retirement at almost no cost, as opposed to private insurers, who typically charge fees in the range of 10-20 percent. For a worker who places $1,000 a year into an account for 30 years and has it matched by an equal sum from the government, these savings on administrative costs and annuity fees amount to more than $12,000 compared with investing with an average private sector financial firm. The savings compared with higher cost firms could be exceed $30,000. This potential savings on administrative fees is one of the main benefits of Senator Clinton’s proposal. It should have been received more attention in the coverage.
--Dean Baker
