White House Unveils Retirement Initiatives

The Obama Administration on Monday released retirement initiatives, including establishing automatic individual retirement accounts (IRAs), simplifying and expanding the Saver's Credit, and updating 401(k) regulations to increase transparency.

More specifically, the 401(k) initiatives include increasing 401(k) fee transparency, providing “unbiased” investment advice, promoting the use of annuities, and mandating additional target-date fund disclosures.

A White House fact sheet about the initiatives, which the Administration says will help middle class Americans, provided only minimal details, but most of its components pertaining to retirement savings track with issues already being studied by the U.S. Department of Labor (DoL) that are expected to be the subject of DoL regulatory releases in coming months.  Many have also been introduced by the administration before (see “President’s Budget Aims to Boost Retirement Savings,” “Obama Administration Launches Retirement Savings Initiatives”)

“A majority of American workers rely on 401(k)-style plans to finance their retirements, making it critical that the 401(k) system be safe, transparent, and well-regulated,” the White House document said.

The White House said the 401(k) retirement savings component of its program will include:

  • More fee disclosure to “help workers and plan sponsors make sure they are getting investment, recordkeeping, 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.”
  • A push for annuities and other guaranteed lifetime income products that reduce “the risks that retirees will outlive their savings or that their retirees’ living standards will be eroded by investment losses or inflation. “
  • More target-date fund disclosures 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.”
  • A streamlining of the auto-enrollment process “which has been shown to boost participation, especially for low- and middle-income workers.”

The Administration is also proposing the establishment of a system of workplace automatic IRAs (see “Retirement for All,” “GAO Says Automatic IRA no Silver Bullet”). Employers not offering a retirement plan would have to put their employees in a direct-deposit IRA program unless the worker opts out. Contributions will be “voluntary” and matched by the Savers Tax Credit for those eligible. Under this part of the program, new tax credits would help pay employer administrative costs and the smallest firms would be exempt.

The White House said it also wants to expand and simplify the Saver’s Credit to match 50% of the first $1,000 of contributions by families earning up to $65,000 and providing a partial credit to families earning up to $85,000. The Administration said it will make this tax credit refundable to ensure that additional middle-income families can take advantage of it even though they have no income tax liability.

The Administration also announced a variety of other non-retirement measures it said would help middle-class Americans hurt by the economic downturn.

Assistant Secretary of Labor Phyllis C. Borzi, head of the Employee Benefits Security Administration (EBSA), discussed a variety of ongoing regulatory efforts involving many of the topics touched on in Monday’s White House press announcement as well as tentative timetables for the DoL regulatory efforts to be concluded during a DoL Webinar in December (see see “EBSA: Fee Disclosure Regs Coming,” “EBSA Examines Fiduciary Status, Investment Advice“).