Retirement plan amendments proposed by White House

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White House

On January 26, the White House released a Fact Sheet in which it announced various proposals that would expand access to workplace retirement savings opportunities and increase the transferability of retirement savings.  The proposals will be detailed further in President Obama’s fiscal year 2017 budget.

[Of course, none of these proposals are guaranteed to become law, but it can be informative reading with regards to how political views (at least from the current administration) about retirement accounts continue to evolve].

Overview.  The White House correctly noted that Americans are increasingly responsible for their own retirement security – i.e., pension plans are quickly becoming a thing of the past, and thus, workers are increasingly reliant on their own lifetime retirement contributions (and earnings thereon).

Proposals to expand access to workplace retirement savings opportunities.  The Fact Sheet notes that fewer than 10% of workers without access to a workplace plan contribute to a retirement savings account (e.g., an IRA) on their own.  A big goal of the administration’s current (and past) proposals is to encourage more employers to offer plans and also create alternative savings arrangements for people who do not have a plan at work.

Make it easier for employers to create pooled 401(k) plans.  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.  The current proposals will for the first time remove the “common bond” requirement, enabling employers to take advantage of “open MEPs.”  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.  [Note: To me, this feels a bit like the “Obamacare” structure that has transformed (for better or worse) the healthcare system for people that do not have a health plan at work].

Tax credits for small businesses that choose to offer employer plans or switch to auto-enrollment.  The President will propose 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.  And small employers that already offer a plan and add auto-enrollment would get a tax credit of $500 per year for up to three years.

Retirement saving 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, the President will propose 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.

Automatically enroll workers without access to a workplace plan in an IRA.  The administration’s Budget will also include a proposal that would require employers with more than 10 employees that do not currently offer a retirement plan to automatically enroll their workers in an IRA.  Employers with 100 or less employees that offer an auto-IRA would receive a tax credit of up to $3,000.

Proposal to increase the portability of retirement savings.  The Fact Sheet noted that much work remains to ensure retirement benefits are as mobile as today’s workforce.  At present, workers who have a workplace retirement savings plan may have to manage a number of retirement accounts left over from prior employers, save in an IRA to which their employer will not contribute, or complete an often burdensome process to move their 401(k) balances from job to job, assuming their new job allows it.