Last month, the White House unveiled several proposals intended to expand retirement savings to more than 30 million American workers. President Obama introduced these items to Congress last week as part of his 2017 budget. But before you get too excited, it may be a while before, or possibly never that, workers will start seeing the effect of these proposals in their paycheck.
The proposals would require employers who do not offer retirement benefits to automatically enroll their workers in Individual Retirement Accounts (IRAs). This would allow workers at small companies to have payroll deductions into a retirement vehicle and allow an employee to move their account from one employer to another as they change jobs.
One promising idea to come out of these proposals is to allow smaller employers to band together to form a larger plan under the Multiple Employer Plan (MEP) rules. Current MEP rules say there must be some commonality between employers before they can participate in such a plan.
However, these proposals face several hurdles before they ever see the light of day. First there are the political considerations – the proposals are coming from a president in the final year of his term, during a period where partisan infighting is blocking anything significant from passing in Congress.
There are also serious budgetary concerns. The proposals would commit hundreds of millions of dollars to seed programs for portability programs and tax credits for employers to establish plans. Meanwhile, tax revenue would be cut by the millions of Americans deferring money into this system.
All these proposals don’t fix the fundamental challenge that the maximum an employee can save annually into an IRA is not enough to create a sustainable income in retirement. Is diverting all this attention to a partial solution worth more than overhauling the current system to make it easier for employers to sponsor better plans?
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advisory services offered through Global Retirement Partners, LLC, a registered investment advisor. Global Retirement Partners, LLC, Frenkel Benefits, LLC, and LPL Financial are separate and non-affiliated companies.
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