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A More Secure Retirement for America’s Workers

Filed in Retirement, Secretary Perez By and on January 26, 2016

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For many workers, planning for retirement used to be simple. 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.

That’s why in his State of the Union address, the president called on Congress to enact policies that will help workers in an ever-changing economy save for retirement and take their retirement savings with them as they change jobs. In every budget since taking office, the president has proposed to automatically enroll approximately 30 million workers without access to a workplace retirement plan in an IRA. And today, we’re announcing new proposals to help more workers save and test approaches to make savings vehicles more portable and effective for an increasingly mobile workforce.

Today, one out of three workers does not have access to a retirement savings plan, including half of workers at firms with fewer than 50 employees and more than three-quarters of part-time workers. Contractors and temporary employees are often unable to participate in employment-based plans. And workers without access to a plan at work rarely save for retirement: fewer than 10 percent of workers without access to a workplace plan contribute to a retirement savings account on their own.

Many workers who have a workplace retirement savings plan may have to manage a number of retirement accounts left over from prior employers or complete an often burdensome process to move balances from job to job, assuming their new job allows it. Their careers may be mobile, but too often their retirement accounts and savings are not.

That’s why President Obama is proposing a new program that will provide grants to states and nonprofits to test innovative, more portable approaches to providing retirement and other employment-based benefits. The goal is to encourage development of new models that are portable across employers and can accommodate contributions from multiple employers for an individual worker or independent contractor, as well as contributions from individuals whose work patterns don’t provide reliable amounts of 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.

To make it easier for such innovations to occur, we’re also proposing legislation to allow multiple unrelated employers to come together and form pooled 401(k)s, resulting in lower costs and less burden for each employer. Through these “open multiple employer plans” (open MEPs), more small businesses should be able to offer cost-effective plans to their employees, while certain nonprofits and other intermediaries could create pooled plans for contractors and other self-employed workers. As an added benefit, employees moving between employers participating in the same open MEP can continue contributing to the same plan – and receiving employer contributions – even if they switch jobs. And independent contractors participating in a pooled plan using that structure can contribute no matter which client is paying them.

These proposals build on the administration’s existing proposals to ensure near universal access to workplace retirement accounts by:

  • Automatically enrolling approximately 30 million workers without access to workplace plans in IRAs;
  • Providing tax credits to encourage small businesses to offer plans and automatically enroll workers in those plans; and
  • Ensuring that long-term, part-time workers are allowed to participate in their employer’s retirement plans.

In the absence of Congressional action, we’ve taken administrative steps to promote savings. For example, the Department of Labor proposed regulations and issued guidance facilitating state efforts to create their own retirement savings plans (many of which are modeled on the president’s auto-IRA proposal), and the Department of the Treasury launched myRA, a simple, safe and no-fee savings option with the same principal-protected return available to members of Congress. IRAs like these offer considerable portability: Workers can continue contributing to them even if they switch jobs, although they do not provide for employer contributions. And Treasury and IRS have issued guidance making it easier to roll over and consolidate savings between 401(k)s rather than amassing a number of small accounts over a lifetime.

We’re also working to protect Americans’ hard-earned savings through the Department of Labor’s rule requiring retirement advisers to put their clients’ best interest first, cracking down on the harmful conflicts of interest that sap billions in families’ retirement savings every year. When finalized this year, this rule will protect workers as they consolidate their savings, rolling from one 401(k) to another 401(k) or to an IRA.

So, we’re continuing to make progress toward the vision the president outlined in his State of the Union – for a more portable and secure retirement for all Americans. Today’s proposals represent another step toward that future.

Editor’s note: This has been cross-posted from the White House blog

Jeff Zients is director of the National Economic Council and assistant to the president for economic policy.

Follow Secretary Perez on Twitter and Instagram as @LaborSec. 

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Comments (14)

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  1. Mary Andersen says:

    why does the government tax retirement benefits so much? What is the incentive to save? You save in your retirement plan but the earnings (which you can’t touch except under certain circumstances) are added to your Social Security benefits (which you have contributed to for years) and your Social Security benefits are taxed.

    The 415 annual addition limitation goes up and it goes down when the government is afraid people are saving too much.

    I agree people need to save but there has to be a logical, cohesive, practical approach to taxing benefits.

    why do people on SS have to stop contributing to an HSA? an HSA represents a savings opportunity for medical benefits which would reduce Medicare spending.

    Its not too secure if everything you save gets taxed.

  2. Doug Williams says:

    Some Unions (IBEW) have been doing something like this for years called portability. The contract is what helps but the agreement of all local union is what made it happened. I hope this happens and done right so we do not have a mass of people retireeing without.

  3. Judy Woodruff says:

    This is very interesting. I look forward to hearing about the progress on this matter. This effects so many people in the US. So many do not really understand anything about retirement or how 401Ks work. They just struggle from paycheck to paycheck and don’t have the “luxury” of planning for retirement. They know they will work until they are not physically or mentally able to. At that time, they will have to deal with whatever they get from Social Security, making choices between eating, living indoors, and purchasing their medications. I have worked with way too many of these type of employees – especially in the healthcare/home care industry.

  4. Patti O'Neil says:

    I am hearing that the federal government will soon regulate retirement portfolios of individuals by requiring brokers and other financial advisors to manipulate the individual holdings to be “diversified ” according to government regulations. Is this true?

  5. Charles Gourd says:

    Why not consider a simple model I suggested years ago. Under the Assets for Independence, one can save for an education, to start a new business,, or a down payment on a home. We tried and tried to add a section for retirement to no avail.
    And, a 403b would be even better.
    Absent a feduciary responsibility clause, all will be lost anyway.
    Why has there been no punishment for the purpetrators of the last collapse? I also am of the opinion that the federal Reserve board is one massive conflict of interest, albeit a distant ancestor of mine was one of t h e authors of the legislation that created it.
    Thanks for your essential work on this vital issue.

  6. ALBERT NORTH says:

    I am retired also Vietnam vet

  7. lynne cutler says:

    wonderful –so needed. we have launched a program called Retirement income solutions for women 50 plus .. so many people are not prepared..and need options to save…

  8. Franco Caliz says:

    Government’s contractors are using the H&W benefits to cover workers Health Insurance and all reminder amount is applied to a 401K. If the workers have proof they have their own Health Insurance all money from H&W goes to 401K.
    Some contractors are offering a Health Insurance that exceeds the H&W amount then workers have to pay the difference from their salary,leaving no money for the 401K.I am receiving no more than $ 662 in a month but I have to pay $752 in a month for a Health Insurance just for me.

  9. Marion Mizell says:

    Ho yes and just how did our late Mayor Mr. Mike Bloomberg just happen to leave office with some 12 Billion Dollars I mean he got to take all of his with him so why cant I get all of my Vested money so I can retire to just like he did can the DOL please tell me how I might get all of my Vested returnes just like Mr. Bloomberg got all of his. May you please reply.

  10. William says:

    The DOL continues to tread where it ought not. Good ideas often start out that way. However, at no point in the history of the US economy has regulated consolidation and elimination of competition ever worked in the long-term favor of the consumer. Providing easier access to retirement plan options is a valid concern taken at face value. However, when combined with a reduction in choice of providers for employees and independent contractors, it will only limit competition, drive up costs to both employees and employers, and reduce quality of service in the long run. This happened with nearly every over-regulated industry of the twentieth century. How and why will history be different this time?

    • Deb says:

      Where did you get your facts to make such a statement. I have worked 30 yrs. in Workforce (with an Advanced College Degree), and I’m always astounded when I see comments like this. The current Corporation Economy in the USA “Reagonomics” has brought poverty to the otherwise educated and productive American Workforce. With Corporations in control of our political process, as well as our Elected Officials, the tax laws, including IRS retirement regulations, the average American worker is left with no options for retirement but poverty (whether to eat or have a shelter from weather). Before Reagonomics was implemented by our Congress under Reagan, corporations/businesses produced what the majority of the American buyers bought. Now corporations decide EVERYTHING. That is what you call “limited competition”. I call it trickle-down economics and there is NOW nothing trickling-down to the hard working American worker. If you are an average earning worker (below $35K annually) you are the one Our government is trying to help!!

  11. Mallery V. Johnson says:

    There are employees working in the Federal Government who retire and have to return to work because their retirement isn’t enough to support them.

    I know of an former employee 70ish who worked at the Department of Labor over 40 years at a low grade retired and returned to work in her old office because she didn’t receive enough retirement to pay rent. She cried the second time she left because she knew she would not be able to pay her bills. She was in the old retirement plan CSRS which pays a monthly annuity during her life.

    Mostly single, but some married government workers at GS-11 and below cannot afford to retired especially in the new FERS retirement. When the savings in their account runs out; that’s it.

    Hopefully, all individuals will be afforded the chance to live their last years with at least basic necessities: a permanent roof over their head, food, and healthcare.

  12. paul cope says:

    Many of the Baby Boomers have over the years accumulated funds in their Traditional IRA and now have to pay a tax on withdrawal. Consideration should be given that if withdrawal of funds from the IRA are used for medical bills, deductibles, co-payments etc. under the affordable care act ; then the withdrawals should be a non-taxable event. This would assist the Baby Boomer generation greatly who are now pretty much on a fixed income. Paul New Jersey

  13. N Portillo says:

    I’m glad to see the options for long-term, part-time employees. This is a growing number of our population and it is often overlooked.