If you work hard your whole life, you ought to have every opportunity to retire with dignity and financial security. And as a nation we ought to do all we can to ensure that folks have sensible, affordable options to save for retirement.
—President Barack Obama

In his September 5, 2009 radio address, President Barack Obama announced initiatives designed to make saving for retirement easier and more automatic for millions of American workers.

According to the Center for Retirement Research, Newton, Mass., an estimated 78 million working Americans—about half the workforce between the ages of 25 and 64—don't have a retirement savings plan at their current jobs. And among those, only one of 10 save through an individual plan, such as a traditional or Roth IRA.

Americans had inadequate retirement savings even before the recession hit, and the recession made the situation much worse. The drop in housing prices and the fall in financial markets caused Americans to lose about $2 trillion in retirement savings over the past two years.

A White House document released in conjunction with Obama's radio address outlines four key initiatives, effective immediately, to expand the range of retirement savings options for workers:

• Streamline automatic enrollment. Behavioral research confirms that workers are more likely to contribute to a retirement plan if they're automatically enrolled. Although many large- and medium-size companies already have adopted automatic enrollment for their 401(k) plans, the new initiative makes it easier for 401(k) plans to adopt automatic enrollment and allows automatic enrollment in SIMPLE IRAs, a type of retirement plan that small businesses can make available to their workers. The IRS has recently issued guidance for employers on how to incorporate an automatic enrollment feature in their retirement plans and add an automatic "step-up" feature to increase the worker's savings rate each year or with each pay raise. Employers choosing to adopt these features must allow workers to opt out of automatic enrollment or stop the automatic increases at any time.


• Redirect tax refunds. Taxpayers already can direct the IRS to deposit their tax refund in an IRA, but beginning in early 2010, taxpayers will be able to check a box on their tax return and use their refund to purchase U.S. savings bonds, which will be mailed to the taxpayer. Beginning in 2011, taxpayers can add co-owners such as children or grandchildren to the bonds purchased with tax refunds.


• Convert unused vacation or leave. Rather than receive cash for unused vacation and similar leave, employers can allow employees to contribute those amounts to their 401(k) plan.


• Use plain language. To help workers understand the confusing rules governing retirement plans when changing jobs, the Treasury Department and the Internal Revenue Service are publishing an easy-to-read, plain-English guide. This road map clearly explains how to transfer plan balances, what key decisions need to be made, and what the tax consequences are for each decision. Look for new, user-friendly Web site materials, too, at irs.gov/retirement.

"These new initiatives would make it easier for Americans to save for retirement and would compliment two important initiatives in President Obama's budget," according to Dennis Zuehlke, compliance manager for Ascensus IRA Services in Middleton, Wis. "We expect the president to also push forward with plans to create automatic IRAs for the millions of Americans who do not have a retirement plan at work, and to expand the Saver's Credit to match retirement savings for low- and middle-income working families," Zuehlke adds.

Published October 1, 2009

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