Obama’s Labor Day Address on Retirement Savings
If you spent the holiday weekend like I did, relaxing and enjoying the last few days of summer, you may have missed President Obama’s weekly address to the nation on retirement security. Based on the amount of media coverage the address received, it seems like the press may have missed the address as well. Obama’s retirement security speech may have been overshadowed by his back-to-school message and his upcoming address to Congress on health care, but the plan he outlined could have a near-immediate impact on American workers.
Treasury made several administrative changes—ones that do not
require new legislation—to promote retirement savings. We could see
these several of the changes take effect by early 2010.
- U.S. Savings Bonds: Starting this coming tax season, Taxpayers will now be able to purchase U.S. Savings Bonds directly on their tax returns. Unbanked taxpayers and those who never previously owned a Savings Bond will also be able to take advantage of this option.
- Automatic Enrollment: The IRS will make it easier for businesses to adopt automatic enrollment and to allow employees to gradually increase contributions to employer-sponsored retirement plans each year. Automatic enrollment has been shown to increase retirement plan participation rates from 70 percent to 90 percent.
- Unused Leave: Rather than taking unused leave time as cash, workers who leave their jobs will now have the option to contribute the amount directly to their retirement plan.
In addition to these administrative changes, the President reiterated his plan create an Auto IRA and to improve the Saver’s Credit. These changes, which may require new legislation, would have the biggest impact on low-income workers. The Auto IRA will provide a retirement savings option to workers who currently lack access to an employer-sponsored plan. And, Obama’s fully refundable Saver’s Credit would offer a meaningful savings incentive to low-income workers.
Overall, I like the President’s approach. He is leveraging Treasury’s authority to make administrative changes to the tax return forms and rules governing employer-sponsored retirement plans. These changes, which are grounded in behavioral economic research and share bipartisan support, take a step toward making savings automatic for millions of workers. By leaving Congress out of the picture, the President is able to go after the low hanging fruit, while implement policies with little time lag.
Those proposal that may require new legislation—the Auto IRA and an improved Saver’s Credit—should have an immediate impact on low-income workers if they are passed. My only concern, and one that I will address in a future post, is that the President continues to focus solely on retirement savings when it seems obvious that low- and moderate-income workers have more immediate savings needs.
Great post