January 26, 2016 at 5:56 PM
President Obama’s latest budget proposals will include provisions that could make it easier to save for retirement by tackling one of the largest obstacles workers face: access to retirement plans.
The president’s proposals, which will be included in his 2017 budget plan, would make savings account plans more available to workers by lowering the costs for small businesses. It also introduces more options for people who don’t currently have a plan through their employer.
For instance, the rule would make it easier for small businesses to come together to split the costs of a retirement plan. Such joint efforts, known as multi-employer pension plans, are already possible but for companies in similar industries. The latest proposal would remove the requirement on industries, making it possible for small businesses in different fields to work together to offer retirement plans to employees.
As a plus for savers, those workers who change jobs to work with another company participating in the group plan would be able to keep the same account.
Obama’s proposal would also triple the tax break offered to small businesses that start offering retirement plans to $1,500 a year for up to three years. Those companies that began to automatically enroll workers into the savings plans, eliminating the inertia that often keeps savers from opening the accounts, would get a tax credit of $500 per year for up to three years.
By reducing the costs of offering retirement accounts for small businesses, Obama hopes to make it easier for more people to set aside money for their later years. Only about half of all workers participate in a retirement plan, according to the Bureau of Labor Statistics. Among those who are part time, participation drops to 20 percent of workers, compared to 64 percent of full-time workers, according to the report.
The president’s plan brings back some changes he’s included in previous budget proposals. For instance, he is once again calling on employers with more than 10 employees to automatically enroll workers into an IRA if the company doesn’t offer a retirement plan. He would also like to require employers to offer retirement plans to part-time workers who have worked for the company more than 500 hours a year for at least three years.
The changes, which would have to be approved by the Republican-controlled Congress, would build on the president’s previous efforts to improve retirement security. Earlier this year, the administration launched myRA, a government-backed retirement savings account for people who don’t already have access to a plan through work. Savers can contribute up to $15,000 to the account, which is a form of Roth IRA, before the money needs to be transferred to a private savings account.