The Obama administration is proposing some new ways to get employees involved in saving for retirement.
The retirement proposals are part of an economic security agenda Obama outlined in his recent State of the Union address.
The president’s plan will involve a number of legislative proposals, which he’s expected to outline in the 2017 budget he’ll submit to Congress next month.
Here are the key parts of the proposal, as outlined in a fact sheet issued by the White House:
- Make it easier for employers to create pooled 401(k) plans to lower cost and burden. Multiple employer plans (MEPs) already allow employers with a “common bond” to form a pooled retirement plan, offering benefits through the same administrative structure but with lower costs and less compliance burden than if each employer offered a separate plan. In his upcoming budget, the president will for the first time propose to remove the “common bond” requirement, enabling employers to take advantage of “open MEPs” while adding significant new safeguards to ensure workers are protected. As a result, more small businesses should be able to offer cost-effective, pooled plans to their workers, and certain nonprofits and other intermediaries will be able to create plans for contractors and other self-employed individuals who don’t have access to a plan at work. As an added benefit, if an employee moves between employers participating in the same open 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.
- Provide tax cuts for businesses that choose to offer more generous employer plans or switch to auto-enrollment. Obama will again propose in his budget to triple the existing “startup” credit, so 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. And because auto-enrollment is the most effective way to encourage workers with access to a plan to participate, small employers that already offer a plan and add auto-enrollment would also get a tax credit of $500 per employer per year for up to three years.
- Expand retirement savings options for long-term, part-time workers. Recognizing that part-time workers are much less likely to have access to a retirement plan, in part because employers are allowed to exclude them from participation, Obama proposes to 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.
- In addition to encouraging employers to offer traditional retirement plans such as a 401(k), the administration hopes to increase the availability and use of IRAs and help workers save by automatically enrolling them in these accounts.
According to the White House, the new proposals would provide more than 30 million people with access to workplace retirement savings options. The proposals would encourage and enable more employers to offer plans such as a 401(k), while creating alternative savings arrangements so workers can save for retirement at work even if their employer does not offer a plan.
We’ll keep you posted.