For many workers, planning for retirement used to be simple. Those who worked for one or two employers throughout their career and had a defined-benefit pension received payments like clockwork to supplement their Social Security check. While Social Security remains a rock-solid guaranteed benefit that every American can rely on, traditional pensions have often been replaced with defined contribution plans like 401(k)s, shifting the risk of preparing for retirement to the worker.
Thatâ€™s why in his State of the Union address, the President called on Congress to enact policies that will help workers in an ever-changing economy save for retirement and take their retirement savings with them as they change jobs. In every Budget since taking office, the President has proposed to automatically enroll approximately 30 million workers without access to a workplace retirement plan in an IRA. And today, weâ€™re announcing new proposals to help more workers save and test approaches to make savings vehicles more portable and effective for an increasingly mobile workforce.
“And for Americans short of retirement, basic benefits should be just as mobile as everything else is today.”— President Obama, 2016 State of the Union
Today, one out of three workers does not have access to a retirement savings plan, including half of workers at firms with fewer than 50 employees and more than three-quarters of part-time workers. Contractors and temporary employees are often unable to participate in employment-based plans. And workers without access to a plan at work rarely save for retirement: fewer than 10 percent of workers without access to a workplace plan contribute to a retirement savings account on their own.
Many workers who have a workplace retirement savings plan may have to manage a number of retirement accounts left over from prior employers or complete an often burdensome process to move balances from job to job, assuming their new job allows it. Their careers may be mobile, but too often their retirement accounts and savings are not.
Thatâ€™s why President Obama is proposing a new program that will provide grants to States and nonprofits to test innovative, more portable approaches to providing retirement and other employment-based benefits. The goal is to encourage development of new models that are portable across employers and can accommodate contributions from multiple employers for an individual worker or independent contractor, as well as contributions from individuals whose work patterns donâ€™t provide reliable amounts of income each month. Good ideas have been raised on both sides of the aisle, but these new approaches are still in their infancy, and we need to figure out what works.
To make it easier for such innovations to occur, weâ€™re also proposing legislation to allow multiple unrelated employers to come together and form pooled 401(k)s, resulting in lower costs and less burden for each employer. Through these â€œopen multiple employer plansâ€ (open MEPs), more small businesses should be able to offer cost-effective plans to their employees, while certain nonprofits and other intermediaries could create pooled plans for contractors and other self-employed workers. As an added benefit, employees moving between employers participating in the same open MEP can continue contributing to the same plan â€“ and receiving employer contributions â€“ even if they switch jobs. And independent contractors participating in a pooled plan using that structure can contribute no matter which client is paying them.
These proposals build on the Administrationâ€™s existing proposals to ensure near universal access to workplace retirement accounts by:
- Automatically enrolling approximately 30 million workers without access to workplace plans in IRAs;
- Providing tax credits to encourage small businesses to offer plans and automatically enroll workers in those plans; and
- Ensuring that long-term, part-time workers are allowed to participate in their employerâ€™s retirement plans.
In the absence of Congressional action, weâ€™ve taken administrative steps to promote savings. For example, the Department of Labor proposed regulations and issued guidance facilitating state efforts to create their own retirement savings plans (many of which are modeled on the Presidentâ€™s auto-IRA proposal), and the Department of the Treasury launched myRA, a simple, safe, and no-fee savings option with the same principal-protected return available to members of Congress. IRAs like these offer considerable portability: workers can continue contributing to them even if they switch jobs, although they do not provide for employer contributions. And Treasury and IRS have issued guidance making it easier to roll over and consolidate savings between 401(k)s rather than amassing a number of small accounts over a lifetime.
Weâ€™re also working to protect Americansâ€™ hard-earned savings through the Department of Laborâ€™s rule requiring retirement advisers to put their clientsâ€™ best interest first, cracking down on the harmful conflicts of interest that sap billions in familiesâ€™ retirement savings every year. When finalized this year, this rule will protect workers as they consolidate their savings, rolling from one 401(k) to another 401(k) or to an IRA.
So, weâ€™re continuing to make progress toward the vision the President outlined in his State of the Union â€“ for a more portable and secure retirement for all Americans. Todayâ€™s proposals represent another step toward that future.