President Obama has already introduced a new type of retirement account: the myRA. In his 2017 budget, he plans to further tweak the retirement account system. Here are some of the 401(k) and IRA changes Obama is proposing:
Pooled 401(k) plans. Setting up and managing a 401(k) plan can be burdensome for small businesses. Under current law, employers with a “common bond” can form pooled 401(k) plans, and share the administrative work and costs. Obama will propose removing the “common bond” requirement in an effort to encourage more small employers to set up pooled retirement accounts. Labor Secretary Thomas Perez says these pooled 401(k) plans will allow small businesses to, “share administrative costs and reduce some of their compliance burdens.” The rule change would also allow nonprofits to create retirement accounts for contractors and self-employed individuals who aren’t eligible to participate in existing workplace retirement plans.
Automatics IRAs. Employees are frequently automatically enrolled in the company 401(k) plan unless they opt out. Obama would like to automatically enroll workers without a workplace retirement plan in an individual retirement account. “Workers without a retirement plan at work rarely save,” says Jeffrey Zients, director of Obama’s National Economic Council. He says fewer than half of companies with less than 50 workers provide a retirement plan for employees. Obama’s proposal would require employers with more than 10 workers to automatically enroll employees in an IRA if they don’t provide another type of retirement benefit. Companies with 100 or fewer employees who sign their workers up for the automatic IRA would also receive a tax credit of up to $3,000. Workers who are not automatically enrolled in the IRA would be eligible to participate on their own if their income is below a certain cutoff.
Bigger tax breaks for employers. Small businesses currently get a tax credit when they set up a new retirement plan. Obama wants to triple the existing credit to $1,500 per year for up to three years for small employers offering a new retirement plan. Small businesses that add automatic enrollment to their existing retirement plan would also get a tax credit of $500 per year for up to three years.
Part-time participation. Employers are allowed to exclude part-time employees from participating in the company retirement plan. Obama is proposing that all employees who work at least 500 hours per year for three or more years be eligible to participate in an employer’s existing retirement plan. The White House says this change would provide a million people with access to retirement plans.
Portable benefits. Obama’s budget will propose funding pilot programs that will make retirement benefits more portable as people change jobs. Nonprofit organizations and states would receive funding to design and evaluate retirement benefits that can accommodate job changes, intermittent deposits, unpredictable work patterns and contributions from multiple employers. “People are less likely to be there 40 years at the same job, much less liked to have a defined benefit plan, much more likely to want the portability and flexibility,” Perez says. “Benefits need to be portable as workers move from job to job.”
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