By Martha M. Hamilton
Sunday, December 2, 2007

For the past few years attention has focused on making 401(k) and other retirement plans work better for those who have access to them. And the improvements have been considerable. The move to automatic enrollment and default investments that provide better returns increases the likelihood that more workers will reach retirement with a bigger stockpile of savings.

But what about the roughly 75 million workers who don't have access to workplace retirement savings plans? They tend to be younger and to have low to moderate incomes. And many of them work part time or for small businesses or are self-employed. Although opening an individual retirement account is an alternative, it can be tough to do if you're just scraping by and your employer doesn't have a system set up to encourage you to save through payroll deduction, automatic enrollment and matching money.

This lack of coverage is a serious problem and, I must confess, not just a theoretical concern for me. It's as real as my daughter Alec (aka Sarah), who has spent the past two years working almost seven days a week, rebuilding her Hurricane Katrina-damaged house in New Orleans. She's done wiring, welding, sheetrocking, plumbing and almost everything else. She took a three-month break living in Ciudad Chihuahua in Mexico and writing a novel, and occasionally she works for pay. She purchased the house eight months before Katrina hit and pays her mortgage with rent from her housemates. Fortunately, she knows how to stretch a dollar: Her beautiful garden is full of plants that she has salvaged from curbs where they were left for trash collection by landscapers or homeowners, and she gets around on bikes that she builds at the Bike Project.

At 31, my daughter is wonderful and amazing. She works extraordinarily hard, but the jobs that she's had aren't the kind that have retirement plans. Most recently she's been doing "deconstruction" with the Green Project, helping take apart houses by hand so that building materials can be reused instead of being scraped into a landfill by a bulldozer.

As a result, like many other hard-working folks out there, she doesn't have a dime set aside for retirement.

Happily, there are ideas percolating that would make it easier for those who don't have access to retirement savings plans to put aside money. Some of the plans are even bubbling up in the presidential campaigns. Several groups have come up with proposals for how to make such a system work. Many of the ideas share features. It's possible this could be the next legislative frontier for improving defined contribution plans such as the 401(k).

Several proposals would create savings plans that are not run by employers, but for which employers provide payroll deductions. The Conversation on Coverage, a six-year effort by an array of retirement experts, came up with something called the Retirement Investment Account. The RIA would be administered by a government-sponsored central clearinghouse that would contract with the private sector to invest employee contributions.

"One reason we focused on that was that we thought that having a single place where employers deposit the money would make it easier on employers, rather than having to select a vendor," said John Kimpel, former senior vice president and deputy general counsel of Fidelity Investments. Employees would have up to four investment choices, with the default being a combination of stocks and more conservative investments, such as a lifecycle fund.

The Retirement Security Project went in a slightly different direction. A proposal for Automatic IRAs by J. Mark Iwry of the Brookings Institution and David C. John of the Heritage Foundation envisions the payroll deductions but no central clearinghouse. Instead employees might choose their IRAs from a mutual fund or bank and have their money sent there. Or an industry consortium or nonprofit organization might create a standard IRA account -- with limited investment options and low costs -- in which employees could participate. Workers who are self-employed might be able to participate through automatic debit arrangements created by trade or professional associations.

Iwry and John say that their plan is carefully designed so that it wouldn't discourage employers from setting up a traditional 401(k). For one thing, the annual maximum contribution level for IRAs is $4,000. As they noted in one of their summaries, "This is sufficient to meet the demand for saving by millions of households but not high enough to satisfy the appetite for tax-favored saving of business owners or decision-makers, who can contribute up to $15,500 to a 401(k) (or $20,500 if they are age 50 or older)."

So far, this proposal seems to have the most traction. Legislation based on the proposal has been introduced by Senate Finance and House Ways and Means committee members.

One feature that several proposals share is changing the Savers Tax Credit to make it refundable. Currently the Savers Tax Credit provides a nonrefundable credit of up to $1,000 or up to $2,000 for married couples for contributions to an employer plan or IRA, which is only valuable if you have a tax obligation. If the credit were made refundable and added to the retirement savings account, it would be another incentive to save and would help the account grow in the same way that employer matching funds do.

Still another proposal, by Teresa Ghilarducci for the Economic Policy Institute, calls for Guaranteed Retirement Accounts and goes further than some other proposals in several of its features. For one thing, the accounts would be administered by the Social Security Administration, and participants would be guaranteed a fixed 3 percent rate of return by the government. If investment returns for the fund were better than that, the surplus would be distributed to participants. It would also convert the savings into a life annuity when workers retire to ensure that retirees don't outlive their income. The proposal also would require contributions equal to 5 percent of earnings up to the Social Security maximum ($97,500) and is designed to replace 70 percent of the average worker's pre-retirement earnings.

The Economic Policy Institute plan features a refundable tax credit and would eliminate the current tax deferral for 401(k)s and IRAs, which favors higher income workers. The higher your tax bracket, the more you benefit from each dollar saved. Ghilarducci points to a study that found that almost half of the tax subsidies for retirement savings go to the top 10 percent of earners.

Needless to say, all these proposals are far more complex than my brief descriptions of them. If anything comes of all the ideas that are being refined and retooled, that's when the details will matter.

Is there reason to think anything will? Iwry points to the fact that he and John represent different parts of the political spectrum, but their proposal has drawn support from Democrats and Republicans.

"I was in the business for over 30 years, and this was the issue that everybody scratched his head about," said former Fidelity executive Kimpel.

In the meantime, I'm keeping my fingers crossed that Alec sells her novel and uses part of the proceeds to open an IRA.

Join Martha Hamilton and John Kimpel, former senior vice president and deputy general counsel of Fidelity Investments, for an online chat Tuesday at noon onhttp://washingtonpost.com.