In his weekly radio address to the nation on Saturday, President Obama announced some new initiatives for retirement savings.  The ideas are designed to make it easier for families to save for retirement and were created to complement his legislative proposals to boost participation in IRAs and match retirement savings.

The initiatives, which do not need approval by Congress, include:
•    Expanding opportunities for automatic enrollment in 401(k) retirement plans
•    Make it easier for millions of families to save all or part of their tax refunds
•    Allow workers to convert unused vacation time into retirement savings
•    Help everyone better understand the options available for tax-favored retirement savings

Here is a bit more detail on each idea.

Automatic enrollment
•    Automatic 401(k) plans allow employers to automatically enroll employees into the plan and to deposit a small percentage of each paycheck into a retirement account, unless the employee opts-out.
•    Automatic enrollment provisions have been shown to boost plan participation from about 70% to more than 90% of employees.
•    Nearly half of large companies have adopted automatic enrollment, but not many small and mid-size companies have taken that step…in many cases because of the steps employers must take to ensure legal compliance.
•    Under the new initiatives, the government will issue pre-approved automatic enrollment language, which will allow companies to adopt the automatic enrollment more quickly and without the need for case-by-case approval by the IRS.
•    The employee will still be able to opt out of the plan or save a different amount.
•    The government is also issuing guidance that will help small employers interested in the automatic enrollment option for SIMPLE-IRA plans.

Saving tax refunds

•    More than 100 million families receive tax refunds every year.  Taxpayers can already have the IRS directly deposit their refund into an IRA.
•    Beginning in 2010, taxpayers will be able to check a box on their tax return that will direct their refund to purchase a US savings bond, without having to open an account at Treasury.
•    The bonds will be mailed to the taxpayer.

Unused vacation time

•    Often, when workers leave a job, they receive payments for unused vacation, or leave time.
•    The Treasury and IRS have issued rulings describing how employers can allow the employee to contribute those funds to their 401(k) plan.

Help employers and employees better understand their options

•    When employees change jobs, or retire, and receive payments from a retirement account, their choices are not always well understood.
•    The Treasury and IRS have issued a “plain-English” road map for rollovers to help employees keep their savings in tax-favored retirement plans, rather than withdrawing cash and possibly facing tax penalties.
•    The IRS has also created new user-friendly website materials to help employers select the most appropriate plan for their business and for employees to better understand their choices.

I haven’t agreed with most of the President’s actions and ideas since taking office.  But, for the most part, I like these ideas.  Anything that encourages and simplifies the process for Americans to save more for their retirement is a good thing.  While I wonder how often a couple of these initiatives will be utilized, they seem to be a good step in that direction.

If you have questions about the initiatives, or any questions about the most effective way for you to save for retirement, please contact my office.