The last week in January, the Obama administration announced a proposal, which if approved will make retirement planning easier for many Americans. In the face of today’s retirement planning crisis, this is good news for many. A large number of individuals across the country are unable to participate in savings accounts either because plans are not offered by employers or because of their own budgeting challenges.
Smaller companies also face their own budgeting concerns—as offering plans to employees may simply be too expensive for them to do so. In fact, the growing number of smaller businesses—the ones who provided two-thirds of all jobs last year—can’t afford to offer any benefits at all.
The retirement savings crisis is a subject that has been long discussed and analyzed by many—and is nothing to take lightly. As people grow older, often their expenses grow wider. Health care costs can be extraordinary, Social Security benefits are becoming skinnier, and too many Americans face working long past retirement age just to make ends meet—if they are physically able.
These facts are reasons Obama’s proposal is critical. As only one out of three American employees have no access to employer-sponsored retirement plans, Obama’s proposal potentially paves the way for 30 million individuals to gain this critical benefit. Making this process somewhat easy for both employers and employees in today’s tough economic era offers a glimmer of hope for those having a hard time building nest eggs for their golden years.
According to an article published in USA Today, the main points of the proposal include:
- Offering tax credits to small businesses that automatically enroll employees in a new 401(k)-style retirement plan— or requiring them to offer payroll deductions to an Individual Retirement Account if they don’t offer a company plan.
- Requiring companies with existing plans to offer them to long-term, part-time workers who work 500 hours a year for three years; and
- Making it easier for companies to pool their retirement plans to bring down expenses through multiple employer plans.
Additionally, according to another article published by The Wall Street Journal, “To protect consumers, the Labor Department is rushing to complete a landmark rule that would impose tougher regulations on financial advisers working with retirement savers. The so-called fiduciary rule would require brokers and financial advisers to act in the best interest of retirement savers, and it aims to lower the cost of savings by eliminating potential conflicts of interest between people who offer investment advice and companies that sell financial products.” There is some resistance in the financial industry regarding this potential ruling and only time will tell the outcome here.
Nonetheless, the potential of these intended changes is exciting. The hope is to provide a number of options that make saving actually attainable for those who are currently unable to build retirement income. The proposal could also have a positive bearing on those who currently do have retirement plans. The simple fact that the administration wants to make accounts portable would be a great coup for many individuals, and could possibly even have an impact on those who choose to self-direct their IRAs and 401(k) plans.
So, now that you have the latest news on this subject—the waiting game begins. The proposal still has to pass Congress, and you know how that process goes. The important thing is that the powers-that-be are addressing the retirement crisis and actively exploring cost-effective ways for employers and employees alike to benefit from any of these changes that may be enforced.
We shall see.
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