Trump Proposes Federal Retirement Accounts for Employees

During his State of the Union address on Tuesday, President Donald Trump unveiled a new plan to help millions of workers save for retirement.

Trump said his administration would roll out new federally managed retirement accounts aimed at the nearly 60 million Americans who do not currently receive retirement benefits through their employer. The goal, he said, is to address the “huge disparity” in retirement savings between workers with a 401(k) and those without.

“Next year, my administration will give these often forgotten American workers — the great people, the people who build our country — access to the same kind of retirement plan that is offered to all public employees,” Trump said during his lengthy speech.

Government employees have access to retirement accounts called Thrift Savings Plans, or TSPs, which boast low administrative fees and a range of index funds and target dates to choose from. Trump’s proposal builds on these accounts to give everyday workers in the private sector similar retirement savings tools.

How will federal retirement accounts work?

Despite the new retirement accounts being heavily based on TSPs, details on how they will work and when they will be rolled out are few.

What we do know is that the accounts are addressed to the employees who do not have them through their employer. That translates to about half of all private sector workers, according to Pew Research, or about 56 million Americans.

These retirement accounts are also a completely different proposition from Trump Accounts, which are investment savings accounts that give kids access to the stock market at a young age so that their savings can grow when they reach adulthood or retire.

A key part of Trump’s latest proposal that is getting bipartisan praise is that he has promised to match contributions to new retirement accounts — up to $1,000 a year — that reflect the popular employer benefit of 401(k)s.

“It was encouraging to see the State of the Union support broad, bipartisan support for expanding access to retirement savings,” said Dan Doonan, executive director of the nonpartisan National Institute on Retirement Security. “Retirement insecurity is a real and growing challenge, and any serious proposal that increases coverage needs to be considered.”

What is most unique about these matching contributions is that the benefit will not be tied to employers directly. The accounts will be “portable,” meaning they will remain with the same benefits regardless of whether the employee changes or loses a job.

“Expanding access is a logical step,” said Teresa Ghilarducci, director of the Wealth Equity Lab, in response to the proposal. He added that, for decades, the US has endured a system that makes it difficult for workers — especially part-time and gig workers — to save for retirement.

“Addressing that coverage gap is no small thing,” he said.

The White House has not shared details yet on when the accounts will be available for registration, but the Trump administration insists it has the authority under current law to create the accounts and fund them with matching benefits without Congressional approval, although Congress could improve the program through additional legislation.

Experts have read between the lines to suggest that contribution matching may depend on an upcoming federal tax credit called the Saver’s Match. With the SECURE 2.0 retirement planning package, the Saver’s Match credit will provide a 50% matching contribution to individual retirement accounts (IRAs), up to $1,000 for eligible individuals and $2,000 for married couples.

This credit is separate from Trump’s new retirement account proposal and will be available to retirement savers in 2027.

Despite this justification, some experts question the administration’s authority to create the program without Congress.

“The details are still limited, but meaningful and robust reform would require action by Congress,” Doonan said. “The legislation will provide clear mandates, greater flexibility in program design and the stability needed to ensure long-term success.”

Retirement deja vu?

Eight years ago, former President Barack Obama stood on the floor of the House of Representatives during his State of the Union address and laid out “a new way for working Americans to start saving for their retirement.”

“A Social Security check is often not enough by itself,” Obama said. “And even though the stock market has doubled in the last five years, that doesn’t help people without 401(k)s.”

The solution, he said, was myRA, a portable retirement savings account for workers without access to an employer-sponsored plan.

The program was officially launched by the Ministry of Finance in November 2015, but myRAs were not very successful due to low enrollment, limited investment options and a cap of $15,000.

“MyRA is relying on individuals to learn about the program, seek it out and enroll on an ongoing basis. Those behavioral barriers are very limited to participation,” Doonan said.

By 2017, only 30,000 accounts had been opened, and Trump had taken office. Under new leadership, the Treasury Department shut down the program, citing high maintenance costs and low enrollment.

Now the Trump administration is ready to give retirement accounts around the world another shot. Like myRAs, Trump’s retirement accounts appear likely to be frozen without the new law. That speeds up the implementation process but leaves them vulnerable to being dismantled by the next administration.

Low enrollment is another obstacle that can derail the program. But this time, the White House is pushing broader investment options and matching annual contributions as major incentives.

For the program to be successful, Doonan emphasizes the need for seamless participation – for businesses and workers.

“Automated enrollment, income consolidation and simplification would be important to avoid the pitfalls of past efforts,” he said.

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