The Obama administration proposed a set of policy initiatives designed to help American workers save for retirement. The proposals — housed in the President's fiscal 2011 budget proposal — would require employers that do not offer a retirement plan to automatically enroll their employees in individual retirement accounts (IRAs). The administration also wants to expand the savers' tax credit and is in the process of updating current 401(k) regulations.

Retirement Security

Establishing automatic IRAs. Roughly half of working Americans lack employer-based retirement plans, the administration states. To address that deficiency, the task force proposes requiring employers that do not offer a retirement plan to enroll their employees in a direct deposit IRA unless the employees opt out. The contributions would be voluntary and matched by the saver's tax credit for eligible families. New tax credits would help pay employer administrative costs and small firms (defined as those with 10 or fewer employees) would be exempt.

Simplifying and expanding the saver's credit. To provide families with more incentive to save for retirement, the administration's task force proposed expanding and simplifying the saver's credit to match 50 percent of the first $1,000 of contributions by families earning up to $65,000 and providing a partial credit to families earning up to $85,000. The administration also wants to make the tax credit refundable so families with no income tax liability can take advantage of it.

The saver's credit allows qualifying individuals to claim a tax credit for contributing to a qualified IRA, 401(k) plan or certain other retirement plans. For 2009, married couples filing jointly can qualify if their incomes are $55,500 or less. Qualifying individuals can claim a tax credit of up to $1,000 ($2,000 if filing jointly).

Updating 401(k) regulations to improve transparency and reliability. Most American workers rely on 401(k)-style plans to finance their retirements, and the administration's policy proposals highlight the work currently being done by the Department of Labor (DOL) and other federal agencies in this area. The administration says it is:

• Improving the transparency of 401(k) fees to help workers and plan sponsors get a more complete picture of investment, record-keeping and other fees. For plan years beginning on or after Jan. 1, 2009, more detailed reporting on provider fees and compensation on Schedule C of Form 5500 will be required.
• Encouraging plan sponsors to make unbiased investment advice available to workers, while providing protections against conflicts of interest. The DOL plans to publish new investment advice regulations in June that will amend the current definition of plan "fiduciary" to include financial advisers.
• Promoting the availability of annuities and other forms of guaranteed lifetime income, which transform savings into guaranteed future income. With this, the administration hopes to reduce the risk that retirees will outlive their savings or that their living standards will be eroded by investment losses or inflation. Federal agencies, including the DOL, are soliciting more information on this topic.
• Reviewing and requiring clear disclosure regarding target-date funds (TDFs), which shift assets among stocks, bonds and other investments over the course of an individual's lifetime. The DOL is likely to issue guidance regarding the fiduciary duties related to choosing TDFs for retirement plans.

For more on retirement planning, see the 401(k) Handbook from Thompson Publishing Group.