More than 30 million people could gain access to retirement savings with a few policy tweaks, the Obama administration said Monday.
President Barack Obama will pitch new proposals to expand access to retirement savings accounts and revisit some old ones when issuing his budget, due Feb. 9.
“And for Americans short of retirement, basic benefits should be just as mobile as everything else is today. Even if he’s going from job to job, he should still be able to save for retirement and take his savings with him,” Obama said during his State of the Union address.
The biggest new proposal would permit small businesses from different fields to join together and offer a retirement plan. Current rules only permit businesses from like fields, such as two law firms, to offer multi-employer plans.
The change will help employers by allowing them to share the administrative costs, the White House said. As an added benefit, if an employee moves between employers participating in the same multiple-employer plan (MEP), or is an independent contractor participating in a pooled plan using the open MEP structure, he can continue contributing to the same plan even if he starts work for a different company.
“All the data points toward the importance of increasing employer-provided retirement plan coverage,” said David Littell, co-director of the New York Life Center for Retirement Income at The American College. “The risk of a retirement shortfall drops dramatically when an employee has access to a plan.”
An Employee Benefit Research Institute study concluded that those without pension coverage have a 60 percent risk of a financial shortfall in retirement. For those who have 20 years of enrollment in some type of plan, that risk drops to 18 percent.
Other proposals in the forthcoming budget include:
- Provides tax cuts for businesses that choose to offer more generous employer plans or switch to auto-enrollment. Small employers that newly offer a retirement plan would receive a tax credit of $1,500 per year for up to three years – likely enough to offset administrative expenses.
- Expand retirement savings options for long-term, part-time workers. The budget will require that employees who have worked for an employer at least 500 hours per year for at least three years be eligible to participate in the employer's existing plan.
- Re-proposal to automatically enroll workers without access to a workplace plan in an Individual Retirement Account. This has appeared in past Obama budgets.
- Pilot new, more portable approaches to providing retirement and other important benefits typically offered by employers. The budget will propose "demonstration funding for nonprofits and states to design, implement, and evaluate new, innovative approaches to provide more portable retirement and other employer-provided benefit coverage," the White House said.
The administration has had successes pushing worker savings. Its MyRA program that started last year was a "small step in the right direction," said Jamie Hopkins, co-director of the New York Life Center for Retirement Income.
MyRA allows participants to save up to $15,000 for retirement, with no fees or risk of loss in principal. The funds are held in U.S. government debt, a safer alternative than stocks and corporate bonds.
Contributions are made directly from savers’ bank accounts, bypassing the need for an employer-sponsored retirement plan or financial custodian.
Despite the myRA and other changes, Americans in general remain “woefully” short of what they need for retirement, Hopkins pointed out.
The administration could run into opposition with its re-proposal of legislation requiring employers that don't offer a retirement plan to automatically enroll their workers in an IRA. The employers that did so would get a tax credit of $3,000 to help them offset the administrative expense.
“An automatic enrollment IRA would keep costs down for employers and would reduce the hurdles to save for retirement for millions of American workers,” Hopkins said via email.
The proposal was also part of last year's budget, but Republicans have not warmed to the idea.
The White House said its package would result in “near universal access” to a retirement plan.
“Access to workplace retirement savings plans is key to workers’ future economic security,” the administration said in a fact sheet. “Today, one out of three workers does not have access to a retirement savings plan, including half of workers at firms with fewer than 50 employees and more than three-quarters of part-time workers.”
Workers without access to a plan at work rarely save for retirement: fewer than 10 percent of workers without access to a workplace plan contribute to a retirement savings account on their own, the White House added.
“These are reasonable ideas to help provide incentives for small employers to establish savings plans," Littell said. "And at the same time giving individual employers control over how much they (the employer) contribute to the plan.”
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].
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