Obama To Boost Retirement Savings — Again

By Linda Koco
AnnuityNews

In his State of the Union (SOTU) address this week, President Barack Obama announced several proposals for reforming retirement tax incentives and expanding retirement savings opportunities.

These proposals are in addition to the myRA “starter” savings plan that the President unveiled in his SOTU address last year.

The new proposals would give 30 million additional workers access to a workplace savings opportunity, according to an Administration fact sheet on his new program.

The proposals include:

• Auto-enrollment. Every employer with more than 10 employees that does not currently offer a retirement plan would be required to automatically enroll their workers in an IRA. Workers could opt out of saving, however.
• Tax cuts. Any employer with 100 or fewer employees that offers an auto-IRA would qualify for a $3,000 tax credit. Also, the existing “startup” credit would triple so that small employers that “newly offer” a retirement plan would receive a $4,500 tax credit to offset administrative expenses. In addition, small employers that already offer a plan and add auto-enrollment would get an additional $1,500 tax credit.
• Workplace retirement plans for part-time workers. Expand access for part-time workers by requiring employers who already offer plans to permit certain part-timers to make voluntary contributions to the plan. The affected part-timers would be those who have worked for the employer for at least 500 hours a year for three years or more. Currently, only 37 percent of part-time workers have access to a workplace retirement plan, the Administration says.
• Cap IRA account values. This proposal would prohibit contributions to, and accruals of, additional benefits in tax-preferred retirement plans and IRAs once the account balance reaches about $3.4 million. That amount is “enough to provide an annual income of $210,000 in retirement,” says the Administration, noting that some wealthy people have been using their accounts as if they were tax shelters. That includes 300 individuals who have accumulated more than $25 million each in their IRAs.

How does the Administration intend to pay for the new retirement proposals? “By closing retirement tax loopholes for the wealthy,” the fact sheet says.

Implications

To the extent that the proposed changes draw attention to the need for more Americans to save more for retirement, these proposals could help advisors revisit or introduce retirement savings conversations with clients.

To the extent that these initiatives make consumers think that the government program will be all they need, the proposed initiatives could introduce new barriers to retirement savings discussions.

The expanded use of IRAs might be a new market for insurance and financial advisors who offer these products. The Administration’s fact sheet says nothing, one way or the other, about the role of retail advisors in facilitating the expansion of savings programs that the Administration is seeking to spur. Presumably advisors will not be prohibited from carrying the tax credit message to employers.

AnnuityNews Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].

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