Make a list of the most toxic words in American politics, and “employer mandate” certainly would be in the top 10. Requiring employers to provide health insurance to workers is one of the most controversial features of the Affordable Care Act -- along with the requirement that individuals buy insurance.

But a mandatory retirement savings program might just have a shot at success in Washington as part of a broader bipartisan attempt to address the looming retirement security crisis. The idea is getting a push from a politically unlikely duo: labor economist Teresa Ghilarducci and Tony James, president of Blackstone Group LP, the global asset management firm.

What they have in common is a mutual belief that the 401(k) system is not up to the job of building a secure retirement for average Americans. Indeed, just 23 percent of workers age 45 and higher have saved more than $250,000, according to the Employee Benefit Research Institute.

Meanwhile, Social Security replaces only about 40 percent of pre-retirement income on average, according to the Center for Retirement Research at Boston College -- far short of the 70 to 80 percent most households will need to retire with security.

“People are coming into old age without sufficient money to maintain their lifestyles, and many of them will be poor or near poor when they were once middle class,” Ghilarducci says.

How It Would Work

Ghilarducci has long advocated replacing 401(k)s with a federally managed retirement savings plan called Guaranteed Retirement Accounts (GRAs), and now she has teamed up with James to push the idea. The two recently published a white paper outlining a joint version of Ghilarducci’s GRA idea. Ghilarducci also is serving on a commission on retirement security and personal saving organized by the Bipartisan Policy Center (BPC), which will report its findings in May -- and is expected to reflect at least some features of the GRA.

The 401(k), a tax-deferred workplace-based vehicle for saving and investing for retirement, requires individuals to make their own investment decisions. Some 401(k) plans have high fees -- and they are not designed to provide a guaranteed lifelong income stream.

Ghilarducci and James propose that every worker would own and control a GRA account, initially contributing 1.5 percent of income, which would be matched by employers. Their plan calls for a mandatory system with universal participation, but it would be cost-neutral for workers below median income level (a family earning $45,000), because it would be offset by a tax credit.

Account holders would choose from a list of professional money managers competing for their business in a federally run exchange. The aim is to let managers compete for business based on returns and their ability to keep costs down. At retirement, savings would be converted automatically to an annuity that guarantees a yearly payout for life. This would be accomplished through a nationwide retirement pool that shares actuarial risk and administered by the Social Security Administration.

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