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White House announces retirement savings incentives that will be in 2017 budget

FACT SHEET: Building a 21st Century Retirement System, issued by the White House (Jan. 26, 2016).

On January 26, the White House released a Fact Sheet in which it announced proposals that would expand access to workplace retirement savings opportunities and increase the portability of retirement savings. The proposals will be detailed further in President Obama’s fiscal year 2017 budget.

Overview of President’s proposals. The White House noted that, while Social Security remains a guaranteed benefit available to every American, Americans are increasingly responsible for their own retirement security. No longer do many workers spend their entire career with one company that will provide them a pension in retirement. Traditional notions of work and lifetime employment have changed, and those changes require a rethinking of the country’s approach to retirement savings.

Proposals to expand access to workplace retirement savings opportunities. The Fact Sheet noted that fewer than 10% of workers without access to a workplace plan contribute to a retirement savings account on their own. It provides the following proposals that would encourage more employers to offer plans and also create alternative savings arrangements for persons whose employer does not offer a plan.

Make it easier for employers to create pooled 401(k) plans. Multiple employer plans (MEPs; see Code Sec. 413(c)) already allow employers with a “common bond” to form a pooled retirement plan, offering benefits through the same administrative structure but with lower costs and less compliance burden than if each employer offered a separate plan. The President will for the first time propose to remove the “common bond” requirement, enabling employers to take advantage of “open MEPs.” And, certain nonprofits and other intermediaries will be able to create plans for contractors and other self-employed individuals who don’t have access to a plan at work.

Tax credits for small businesses that choose to offer employer plans or switch to auto-enrollment. The President will propose to triple the existing “startup” credit (Code Sec. 45E), so small employers that newly offer a retirement plan would receive a tax credit of $1,500 per year for up to three years. And small employers that already offer a plan and add auto-enrollment would get a tax credit of $500 per year for up to three years.

Retirement saving for long-term, part-time workers. Recognizing that part-time workers are much less likely to have access to a retirement plan, in part because employers are allowed to exclude them from participation, the President will propose to require that employees who have worked for an employer at least 500 hours per year for at least three years be eligible to participate in the employer’s existing plan.

Automatically enroll workers without access to a workplace plan in an IRA. The President’s Budget will include a proposal – included in his past Budgets – that would require employers with more than 10 employees that do not currently offer a retirement plan to automatically enroll their workers in an IRA. Employers with 100 or less employees that offer an auto-IRA would receive a tax credit of up to $3,000.

Proposal to increase the portability of retirement savings. The Fact Sheet noted that much work remains to ensure retirement benefits are as mobile as today’s workforce. At present, workers who have a workplace retirement savings plan may have to manage a number of retirement accounts left over from prior employers, save in an IRA to which their employer will not contribute, or complete an often burdensome process to move their 401(k) balances from job to job, assuming their new job allows it.

The President will propose demonstration funding for nonprofits and States to design, implement, and evaluate new approaches to provide more portable retirement and other employer-provided benefit coverage. The goal is to develop and test models that are portable across employers and can accommodate intermittent contributions or contributions from multiple employers for an individual worker. In addition, the Department of Labor will evaluate existing portable benefits models and examine the feasibility of greater change.

References: For qualified plans, see FTC 2d/FIN ¶  H-11000; United States Tax Reporter ¶  4014; TaxDesk ¶  141,002; TG ¶  8002. For IRAs, see FTC 2d/FIN ¶  H-11201; United States Tax Reporter ¶  4084.02; TaxDesk ¶  143,000; TG ¶  8500.

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