Obama Administration Suggests Retirement Reform


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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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance Retirement
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