President Announces Initiatives for Retirement Savings

By Stephen Miller Sep 8, 2009

In his Sept. 5, 2009, weekly radio address, President Barack Obama announced a set of initiatives by the U.S. Treasury Department and Internal Revenue Service (IRS) intended to make it easier for employed Americans to save for retirement. The new federal steps, which do not require congressional action, include guidance and simplified procedures to:

• Enable workers to convert their unused vacation or other leave into additional retirement savings.

• Expand opportunities for automatic enrollment in 401(k) and other retirement savings plans.

• Allow Americans to save their income tax refunds in U.S. Savings Bonds.

• Provide easy-to-understand language to explain tax-favored retirement savings options to workers and small employers.

These initiatives are distinct from the administration's earlier proposal that employers who do not currently offer a retirement plan be required to enroll their employees in direct-deposit individual retirement accounts (IRAs), and to automatically defer a portion of their salaries into these accounts. No legislation on that proposal has moved so far.

"Making sure that folks have the opportunity and incentive to save—for a home or college, for retirement or a rainy day—is essential," Obama said during his radio address. "If you work hard and meet your responsibilities, this country is going to honor our collective responsibility to you: to ensure that you can save and secure your retirement. That is why we are announcing several common-sense changes that will help families put away money for the future."

U.S. House Republican Leader John Boehner, R-Ohio, offered the president some bipartisan support for the initiatives, saying in a statement, "Republicans are pleased President Obama has joined us in calling for action to help Americans rebuild their lost savings. Millions of Americans have watched with anxiety in the past year as the value of their 401(k)s, college savings plans and other vital savings accounts have plummeted, and government should not be an impediment as they work to restore what they've lost."

However, Boehner also urged the president to support the Republican-introduced Savings Recovery Act [H.R. 2021] "to help Americans protect and rebuild their hard-earned savings as quickly as possible while making sure the federal government does not hinder the process. To date, the Democratic leadership in Congress has blocked this common-sense proposal," he charged, echoing Obama's "common sense" refrain.

Boehner was also critical of Democratic efforts to prohibit plan administrators from providing investment advice, and regulations such as proposed expanded fee disclosure requirements which, he said, could drive up 401(k) plan costs.

In tandem with the president's radio address, the White House released a fact sheet and the Treasury Department and IRS issued a summary of new revenue rulings and notices related to the newly announced initiatives, as highlighted below.

Allow Unused Leave to Be Converted to 401(k) Savings

Many employees receive substantial cash payments for unused vacation or other similar leave annually during employment or at termination of employment. Following the president's address, Treasury and the IRS issued two rulings providing guidance that describes how these amounts can be contributed to employees' 401(k) accounts in lieu of leave if employers choose to provide such an option:

Revenue Ruling 2009-31 addresses annual contributions of payments employees would receive for unused vacation or other similar leave to an ongoing defined contribution plan, whether as employer contributions or elective 401(k) contributions.

Revenue Ruling 2009-32 addresses similar contributions at termination of employment.

Expand Automatic Enrollment

According to the government's announcement, automatic enrollment boosts participation in 401(k) retirement plans from about 70 percent to more than 90 percent, and it is particularly effective in increasing the participation of low-income and minority workers. But while nearly half of larger companies with 401(k) plans have adopted automatic enrollment, fewer medium-sized and small businesses have done so.

As part of the administration's retirement and savings initiatives, the Treasury and IRS issued the following guidance on automatic enrollment:

Revenue Ruling 2009-30 describes ways a 401(k) plan sponsor can include automatic contribution increases in its plan.

Notice 2009-65 provides sample automatic enrollment plan language that a 401(k) plan sponsor can adopt with automatic IRS approval.

Notice 2009-66 includes guidance to help small employers add automatic enrollment to their SIMPLE IRA plans.

Notice 2009-67 provides sample automatic contribution language that a SIMPLE IRA plan sponsor can adopt with automatic IRS approval.

Receive Tax Refunds as U.S. Savings Bonds

Taxpayers can already instruct the IRS to deposit their refunds directly to an IRA or other savings vehicle. In addition, Treasury and the IRS announced that taxpayers will have another savings option beginning in early 2010—the abilit​y to use their refunds to purchase U.S. Savings Bonds by checking a box on their tax return, without having to open an account at Treasury or take any other action, and even if the taxpayer doesn't have a bank account. The savings bonds would be mailed to the taxpayer.

Taxpayers would be able to purchase bonds in their own names beginning in 2010 and to add co-owners such as children and grandchildren beginning in 2011.

Explain Rollover and Retirement Plan Options

Employees changing jobs and receiving payments from a retirement plan face a number of choices, including a tax-free rollover of their benefits to another retirement account. Because these and other "life event" choices are not always well understood, Treasury and the IRS issued the following:

Notice 2009-68 simplifies the presentation of an employee’s options when receiving an eligible rollover distribution. It provides a rollover roadmap that satisfies the required notice that must be provided to employees taking their retirement assets. The notice reflects law changes (such as information on a distribution from a designated Roth account under an employer plan) and explains rules that apply in special situations (such as when a distribution is made to a surviving spouse or other beneficiary).

Life Events that Can Affect Retirement Savings provides more information on major life events that can affect employees’ retirement planning.

In addition, the IRS has launched an online Retirement Plans Navigator that explains, in plain English, the different retirement plan options available to small employers.

Stephen Milleris an online editor/manager for SHRM.

Related Articles:

DOL Further Delays (Not So) Final Investment Advice Rule,SHRM Online Benefits Discipline, May 2009

401(k) FeeDisclosure Bill Draws Support, Opposition, SHRM Online Benefits Discipline, May 2009

No Retirement Plan? Obama Seeks Auto Enrollment in IRAs, SHRM Online Benefits Discipline, March 2009

The Business Case for 401(k) Automatic Enrollment, SHRM Online Benefits Discipline, July 2008

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