A cornerstone of President Obama’s final State of the Union address earlier this month emphasized the need to improve American workers’ access to retirement savings plans, regardless of their employment status. In efforts to make this a reality for millions of workers nationwide, the White House introduced several proposals this week aimed at providing more opportunities for Americans to save for their retirement.
During his State of the Union address, President Obama called on Congress to enact policies that will help workers in today’s changing economy better plan for retirement and take their savings with them as they change jobs.
“For many workers, planning for retirement used to be simple,” said the White House in a statement issued Tuesday. “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.”
According to the White House, one-third of American workers do not have access to a retirement savings plan, including half of workers at firms with less than 50 employees. This is also the case for more than three-quarters of part-time workers.
Contract workers and temporary employees, like those working in the gig economy, are also often unable to participate in employer-sponsored savings plans.
Such workers who don’t have access to a plan at work rarely save for retirement, according to the White House, which notes fewer than 10% of workers without access to a workplace plan contribute to a retirement savings account on their own.
Many of these workers may even have mobile careers, moving from employer to employer. As a result, they may have to manage multiple retirement accounts left over from previous employers or they might be forced to move balances from job-to-job, assuming their new job allows it.
To address these struggles, the Obama Administration is proposing a new program that will provide grants to States and non-profit organizations to test more “portable” approaches to providing retirement and other employer-based benefits to American workers.
“[F]or Americans short of retirement, basic benefits should be just as mobile as everything else is today,” President Obama said during his SOTU address. “And even if he’s going from job to job, he should still be able to save for retirement and take his savings with him. That’s the way we make the new economy work better for everyone.”
With this proposal, the White House’s goal is to encourage the development of new savings models that are portable across employers and can accommodate contributions from workers whose work patterns don’t provide reliable 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,” the White House said in its prepared statement.
The Administration is also proposing legislation that would allow multiple, unrelated employers to form pooled 401(k)s. Dubbed “open multiple employer plans” (open MEPs), these plans aim to ease the burden for small business to offer cost-effective retirement savings plans to their employees.
In serving more “mobile” workers, employees who are moving between employers participating in the same open MEP can continue contributing to the same plan, while also receiving employer contributions even if they switch jobs.
Both proposals build upon the Administration’s existing efforts to ensure universal access to workplace retirement accounts by automatically enrolling 30 million workers without access to workplace plans in IRAs; providing tax credits to encourage small businesses to offer plans and auto-enroll workers in those plans; and ensuring that long-term, part-time workers are allowed to participate in their employer’s retirement plans.
The proposals will be further detailed in Obama’s fiscal year 2017 budget due in February.
Written by Jason Oliva