Senator Jeff Sessions will make you rich!

January 30th, 2007

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When you go from the majority to the minority, the little indignities are almost imperceptible. That’s why Alabama Senator Jeff Sessions, one of the most conservative Republicans this side of Orrin Hatch, might have been a little bit puzzled about why an op-ed he wrote for the Washington Post was published mid-week between Christmas and New Years. As anyone in this town knows only the lonely are in DC during that desolate week.

It’s a shame because Sessions put forth an idea that would dramatically improve the economic circumstances of generations of Americans. They’re called PLUS Accounts, and they are a hybrid of some of the best ideas that came out of the President’s botched Social Security gambit and the various proposals floated by Republicans and Democrats alike. It includes a variation of a proposal that Third Way has touted before – a modest “worth at birth” account given to each newborn. The Sessions proposal has the government placing $1,000 into this account (essentially a $1,000 refundable tax credit that would be placed in an account in the child’s name). This fund would resemble the federal government’s Thrift Savings Plan, which offers 401K holders a limited menu of long term investment options.

Now this is where it gets interesting. Sessions also would create a mandatory minimum pension requirement for all employers and employees. Each would be required to place 1% of their wages into these PLUS accounts. That’s a 1% employer contribution and a 1% employee match for every job. It would mean that every American would have a pension and that every job would add to their retirement wealth – beginning with that awful summer job carrying sacks of manure and mulch to that wonderful mid-career job of putting up with sacks of manure and mulch from your boss.

The Sessions plan promises to make millionaires out of a lot of ordinary people. In real, honest-to-goodness, inflation-adjusted terms – Sessions would create real, measurable wealth for anyone with steady worth. Consider a person who averages a modest wage of $46,000 per year, begins work at the age of 22, and chooses a very modest investment option that accrues at the very conservative rate of 4% per year in inflation-adjusted dollars. At retirement age, this person would have $120,000 in accumulated savings in 2007 dollars. If each spouse had the same work history – this couple would retire with a quarter of a million dollars on top of any other savings, assets, and Social Security they may have earned. And if they earned a bit more and gained slightly more in their returns – this middle class family would retire with a million dollars in real terms.

We live in a new rules economy where the nature of work, retirement and security has changed. The traditional pension is a thing of the past. The new 401K retirement option is far too underutilized, particularly by those in the early years of their careers. By providing a small stipend at birth and requiring all employers and employees to set aside a bare minimum for the future, the entire equation for middle class wealth and security can change.

At least there was one good thing about sitting in DC between Christmas and New Years.