Forex Articles

There was once a time when many retired Americans could count on a regular pension payment every month, not to mention a nice check from Social Security. Now, those days look like a very distant memory.

Relatively few jobs come with a pension any more, and demographic shifts could mean smaller Social Security benefits for those some years away from retirement. More than ever, the onus is on workers to build a nest egg of their own.

So the fact that nearly half of U.S. workers don't participate in a employer-sponsored retirement plan, as the Government Accountability Office recently concluded, is disconcerting to say the least. Some 84% of these individuals cited the lack of a savings program at work – or their ineligibility for such programs – as the primary cause.

The first week of November 2015 saw the official rollout of the federal government's myRA savings plan, aimed at Americans without a workplace retirement program. But the program's biggest advantage – investing in no-risk Treasury bonds – is also its shortcoming. With a projected annual return of just 2% to 3%, it doesn't offer a lot of reward.

Many policy experts feel the real answer is to encourage more private businesses to set up plans to which employees can contribute automatically. A number of proposals have cropped up in recent years seeking to address this challenge.

One of the reasons employers don't offer a 401(k) or other retirement plan is that they're expensive and time-consuming to set up. That's especially true of small businesses, which often can't afford to devote a staffer to overseeing a plan or to hire an outside administrator to manage it.

A possible solution is to expand access to something called a Payroll Deduction Individual Retirement Account (IRA). Unlike most other savings plans, these don't require the company to complete any filings with the IRS or other government agency. All it has to do is take a certain dollar amount out of the employee's paycheck and deposit it into the worker's own IRA.

To date, regulatory hurdles have prevented certain states from establishing payroll deduction IRA programs. Specifically, the Employee Retirement Income Security Act of 1974, commonly known as ERISA, preempts any state law relating to employee benefit plans.

However, there's a good chance that this roadblock could be lifted going forward. In September, the Department of Labor submitted proposed rules to the Office of Management and Budget for review. If accepted, those rules would allow businesses to deduct IRA funds without being subject to ERISA.

Some experts have suggested boosting the tax credit that firms – and in particular, small businesses – receive when they set up a retirement plan for their workers. AARP, in particular, has advocated the use of tax incentives as a way to incentivize such programs. The organization argues that tax credits will help offset the cost to firms of setting up accounts, managing payroll deductions, and providing important information to their employees.

For small and mid-sized businesses, the initial process of selecting a financial institution to manage a retirement plan can be incredibly arduous. How can the government make the process easier?

One possibility is to create an online portal where companies can compare different retirement-plan providers. In much the same that state health marketplace exchanges are making it easier for individuals to shop for health insurance, the website would help streamline the selection of a plan administrator. In theory, companies would have to spend a lot less time finding firms and evaluating factors such as fees and investment options.

Already, though,an increasing number of plan providers in the private sector are trying to simplify the administration process, largely with digital, turnkey programs. See 5 New Players in the 401(k) Space.

Some policy experts believe the solution to our retirement savings dilemma is fairly straightforward: Stop making employee contributions optional. Instead, make them automatic (not unlike the way, under FICA, Social Security contributions are automatically deducted from paychecks now).

For instance, Alicia Munnell, director of the Center for Retirement Research at Boston College, has called for a new program that would be created by the federal government but operated by private financial firms. This new, mandatory tier of accounts would replace roughly 20% of worker earnings.

Whether the plan is politically feasible remains to be seen. Last year, Senator Tom Harkin of Iowa proposed something similar called USA Retirement Funds. It called for 6% of a worker's paycheck to automatically go into the account, although workers would have the option to opt out if they wished. But Harkin's plan failed to gain traction prior to his retirement earlier this year. As a result, the prospects of a national investment plan of this type appear stalled, at least for the moment.

However, the idea of automatic enrollment, in which employees must actively opt out of a plan (instead of opting in), can and is being pursued currently by employers. See How Retirement Plan Admins Trick You Into Saving More.

A surprisingly large number of Americans either don't have, or don't take advantage of, a retirement plan through their place of work, although such programs are rapidly becoming the most feasible, tax-advantaged way to save. A number of proposals are being floated to help employers offer plans, and to increase employees' participation in them.