President Obama outlined a series of initiatives the federal government would take to help people boost their retirement savings, including allowing them to direct tax refunds, pay raises and unused vacation pay to their nest eggs.
One proposal would make it easier for small businesses to automatically enroll workers in a 401(k) or individual retirement account, as large businesses are currently able to do. "We know that automatic enrollment has made a big difference in participation rates by making it simpler for workers to save, and that's why we're going to expand it to more people," Obama said during his weekly address.
By issuing pre-approved automatic enrollment language, the IRS will allow plan sponsors to amend their plans to adopt automatic enrollment more quickly, without the need for case-by-case approval by the IRS, according to a fact sheet issued by the administration.
The administration also wants to make it easier to increase retirement savings by gradually increasing automatic worker contributions over time. Workers would be able to dedicate a portion of their pay raises to retirement savings or be put on a path to save a higher percentage of their pay every year, while remaining free to stop the increases or opt out entirely at any time. The Treasury and the IRS are releasing a ruling explaining how 401(k) plans can use this automatic increase feature, along with guidance to help employers automatically enroll employees in SIMPLE-IRA plans, which combine the basic elements of 401(k) plans and IRAs. Employees will have the ability to opt out.
Another change will allow taxpayers to check a box on their tax return to have their tax refunds sent to them as savings bonds. A third initiative will make it possible for employees to put payments for unused vacation and sick days into their retirement plan if they wish. In addition, the IRS and the Treasury Department are creating a plain-English guide, as well as a website, irs.gov/retirement, to help people deal with retirement account rollovers. It explains how to roll over plan balances, key decisions, and tax consequences.
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