In January 2003, President George W. Bush unveiled an ambitious retirement savings program as part of his annual budget proposal.
His proposals, a complex reorganization of individual and employer-based retirement savings accounts, never earned serious consideration by the legislative branch, even after repeated adjustments and re-proposals over the following five years.
In February, President Obama announced his own retirement savings initiatives as part of his "Supporting Middle Class Families" program. Like Bush, Obama has framed retirement savings as a vital element of economic security. Unlike Bush, Obama's vision is more incremental, building on proposals that have previously garnered moderate support or on regulatory efforts that are already underway.
Automatic IRAs: As first proposed in the administration's federal budget for the 2010 fiscal year, employers that don't already sponsor workplace retirement plans would be required to enroll their employees automatically in a direct-deposit individual retirement account (with voluntary employer contributions) unless the employee opts out. The administration is also streamlining the process for employers to automatically enroll workers in 401(k) plans. New tax credits would help pay employer administrative costs and the smallest firms would be exempt. Automatic enrollment in 401(k) plans, a policy element of the Pension Protection Act of 2006, has proven effective at increasing plan take-up rates.
This "auto-IRA" proposal was not advanced in any 2009 legislation, but could receive more attention as both Congress and the administration pivot to broad economic policy matters in 2010.
Expansion of the Saver's Credit: The current-law Saver's Credit permits low- and moderate-income individuals to take a tax credit of up to $1,000 (up to $2,000 if filing jointly) on voluntary contributions to an employer-sponsored retirement plan or an individual retirement arrangement. The president recommends converting this credit into a governmental matching contribution of 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 would also make this tax credit refundable, to benefit those with limited tax liability.
A version of this proposal was also included last year in the Obama administration's proposed 2010 budget and was introduced by Rep. Earl Pomeroy, D-N.D., in 2009 as the Savings for American Families' Future Act (H.R. 1961). The Saver's Credit has historically enjoyed widespread and bipartisan support, and the American Benefits Council has consistently recommended expansion of the credit for low-income individuals.
Updating 401(k) Regulations: The president's proposals also make reference to certain regulatory projects currently underway at the U.S. Department of Labor including regulations on 401(k) plan fee disclosure and investment advice for defined contribution plan participants, in addition to further study on the availability of annuities and other forms of guaranteed lifetime income and the rules surrounding target-date funds.
According to the Semi-Annual Regulatory Agenda released by the DOL Employee Benefits Security Administration in fall 2009, proposed investment advice regulations are expected to be issued soon. Similarly, service provider defined contribution plan fee disclosure regulations are expected to be issued in final form in May, while the participant fee disclosure regulations should be issued in final form in September.
Various legislative proposals on plan fee disclosure are still pending in Congress and could be considered as part of defined benefit plan funding relief legislation. Plan sponsors are particularly concerned about multiple effective date implications, under which they could have to comply with regulatory guidance, then new legislative mandates and then regulatory guidance issued to implement the new legislation.
DOL also announced recently that the agency will prioritize encouraging the annuitization of defined contribution plan benefits. DOL Secretary Hilda Solis told a Webcast audience in December that her department is working with the U.S. Treasury Department "to determine how best to enhance retirement security by facilitating access to a lifetime stream of income at retirement."
The American economy sometimes struggles with the concept of saving because it is naturally antithetical to consumer spending. Presidents Obama and Bush, though they favor different approaches, wisely understand that retirement security is a vital element of the nation's broader financial security. For savings initiatives to be successful, they must build on the employer-sponsored defined contribution plan system, which boasts established, effective savings vehicles and perhaps most importantly the trust of more than 70 million Americans.
