President Obama outlined a series of initiatives the federal government would take to help people boost their retirement savings.
One would make it easier for small businesses to automatically enroll workers in a 401(k) or individual retirement account, as large businesses are currently able to do. We know that automatic enrollment has made a big difference in participation rates by making it simpler for workers to save, and thats why were going to expand it to more people, said Obama during his weekly address on Saturday.
By issuing pre-approved automatic enrollment language, the IRS will allow plan sponsors to amend their plans to adopt automatic enrollment more quickly, without the need for case-by-case approval by the IRS, according to a fact sheet issued by the administration.
The administration also wants to make it easier to increase retirement savings by gradually increasing automatic worker contributions over time. Workers would be able to dedicate a portion of their pay raises to retirement savings or be put on a path to save a higher percentage of their pay every year, while remaining free to stop the increases or opt out entirely at any time. The Treasury and the IRS are releasing a ruling explaining how 401(k) plans can use this automatic increase feature, along with guidance to help employers automatically enroll employees in SIMPLE-IRA plans, which combine the basic elements of 401(k) plans and IRAs. Employees will have the ability to opt out.
Another change will allow taxpayers to check a box on their tax return to have their tax refunds sent to them as savings bonds. 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 or grandchildren, beginning in 2011.
A third initiative will make it possible for employees to put payments for unused vacation and sick days into their retirement plan if they wish. Most workers currently dont have that option, Obama noted. The Treasury and the IRS are issuing two rulings describing how employers can allow their employees to contribute those amounts to their 401(k) plan. As an alternative, the rulings also give employers the option of making their own contribution of these amounts to their employees 401(k) or other plan.
In addition, the IRS and the Treasury Department are creating a plain-English guide, as well as a Web site, to help people deal with retirement account rollovers. The guide includes a road map with an updated model notice for plans to give departing employees. It explains how to rollover plan balances, key decisions, and tax consequences.
The new IRS Web site aims to help employers select an appropriate retirement plan and to help employees better understand the benefits of saving for retirement. To read the Treasury and IRS rulings and materials, visit www.irs.gov/retirement.
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