There is absolutely no doubt that the last few years have been
rocky, and we may not be out of the woods yet. Certain factors such
as high unemployment, inflation fears, and a still stagnant housing
market, could be catalysts working against a full economic
recovery.
As a result, the Obama administration has started proposing new
changes to protect the retirement savings and income strategies for
workers everywhere, even those without retirement plans. As with
every government proposal, there are competing voices on both sides
of the aisle. Here are some of the suggested changes:
Immediate Annuities Promoted as Suggested Retirement Tool
In the report from the administration's Middle Class Task Force
that came out this week, immediate annuities were recognized as a
preferred strategy for American's retirement income needs. Obama
feels that an annuity gives workers with a better shot at a more
secure retirement. If the biggest risk in retirement is running out
of money, an annuity can help guarantee that you won't. An annuity
is something you buy with a large pile of cash in exchange for a
monthly check for the rest of your life. In effect, it allows you
to purchase the pension that your employer has most likely stopped
offering, and an immediate annuity can help pick up where Social
Security leaves off.
Establishing Automatic IRAs.
Per the task force, 78 million working Americans, roughly half
of savers, lack employer-based retirement plans. Fewer than 60
percent of working heads of families were eligible to participate
in any type of job-related pension or retirement plan in 2007.
The Obama-Biden Administration will promote the establishment of
a system of automatic IRAs in the workplace by requiring employers
who do not currently offer a retirement plan to enroll their
employees in a direct-deposit IRA unless the employee opts out. The
contributions will be voluntary and matched by the Savers Tax
Credit for eligible families. The Administration is also
streamlining the process for employers to automatically enroll
workers in 401(k) plans, which has been shown to boost
participation, especially for low- and middle-income workers.
Other proposed changes include:
Improving the transparency of 401(k) fees to help workers and
plan sponsors make sure they are getting investment,
record-keeping, and other services at a fair price.
Encouraging plan sponsors to make unbiased investment advice
available to workers, helping workers avoid common errors that
undermine retirement security, while providing strong protections
against conflicts of interest.
Reviewing and requiring clear disclosure regarding target-date
funds, which automatically shift assets among a mix of stocks,
bonds, and other investments over the course of an individual's
lifetime. Due to their rapidly growing popularity, these funds
should be closely reviewed to help ensure that employers that offer
them as part of 401(k) plans can better evaluate their suitability
for their workforce and that workers have access to good choices in
saving for retirement and receive clear disclosures about the risk
of loss.