President Obamas inclusion of retirement security in Tuesday nights State of the Union Address was mostly welcomed by the benefits community, as it opens the door for employers to have a new conversation with employees about saving but some are fearful his administration might see the 401(k) industry as a target.
Lets do more to help Americans save for retirement, Obama said to Congress and the nation in his speech on Capitol Hill that lasted just more than an hour. Today, most workers dont have a pension. A Social Security check often isnt enough on its own. And while the stock market has doubled over the last five years, that doesnt help folks who dont have 401(k)s.
When the president says its important, youd think people would be encouraged to step up to the plate when they have a matching contribution and not leave money on the table, or not say no to an employer-sponsored vehicle, says Lynn Dudley, senior vice president of retirement and international benefits policy at the American Benefits Council. Im sure employers will capitalize on that. She adds that employers, in the coming days and weeks, should use the presidents focus on retirement to communicate pertinent messages about their own plans to employees.
Dudley says that what the president unveiled as his plan to create the MyRA a new savings bond for people who do not have employer-sponsored retirement savings vehicles is a good idea and wont interfere with plan sponsors who already have savings set up.
Meanwhile, another industry group, the American Society of Pension Professionals and Actuaries, is taking issue with Obamas indication that 401(k)s mainly help the wealthy in his sales pitch to Congress to fix an upside-down tax code.
Specifically, the president said during his speech, And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans. Offer every American access to an automatic IRA on the job, so they can save at work just like everyone in this chamber can.
The president said the tax incentives for 401(k) plans primarily benefit those with higher incomes. In fact, 80% of 401(k) plan participants are middle class Americans making less than $100,000, ASPPA CEO and Executive Director Brian Graff said in a statement. In reality, households making more than $200,000 only get 17% of the tax benefits from 401(k) plans, while middle income households enjoy the majority of such tax benefits.
Chad Parks, president and CEO of a company specializing in retirement savings for small businesses called The Online 401(k), also says this part of the presidents speech is troublesome. He explains: Right now, if youre making $500,000, then you can only set aside 3.5% of your income through the 401(k) system. If youre making $100,000, then you can set aside 17.5% and if youre making $50,000, and you have the wherewithal, then you can set aside 35% in the tax-deferred system. That clearly doesnt benefit the higher-paid more than the lower-paid.
It is disappointing that [Obama] chose to couple a proposal to help expand retirement savings opportunities for those without a plan at work with a threat to the tax incentives that power existing retirement savings plans for millions of middle class American families, Graff continued in the ASPPA statement.
But, Dudley and Parks agree it wasnt all bad. Everything is slowly turning to point toward this problem and now that it comes out of the presidents mouth, its good for the overall cause that we need to wake up. The baby boomers arent going to be terribly ill-prepared for retirement but the rest of us really need to figure this out, Parks says.
I think people on some level know that savings is good and retirement savings is better, and this was a tip of the hat to that, Dudley says.
Gillian Roberts is the managing editor for Employee Benefit Adviser.
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