| View previous topic :: View next topic |
| Author |
Message |
Dan Kohn
Joined: 26 Jun 2007
Posts: 1504
Location: New York, NY
|
 Posted: Fri Feb 27, 2009 11:31 am Post subject: Budget: Automatic Workplace Pension |
 |
|
The new budget includes a new Automatic Workplace Pension that sounds similar to a SIMPLE IRA. The novel thing is that they're using the ideas from Automatic 401(k) plans (like I previously described), so that all employees will be opted in by default. This is fantastic news, and a huge step toward increasing savings rates.
This will also hopefully be the first step toward "portable 401(k)s". Once employees and Congress see that it is completely feasible for employers to direct deposit into an IRA-like account, there will no longer be an excuse for employers to continue to trap their employees into outrageously expensive 401(k) plans.
| Obama budget proposal, page 85 wrote: | Establishes Automatic Workplace Pensions and Makes the Saver’s Credit Refundable.
Currently, 75 million working Americans—roughly half the workforce—lack employer-based retirement plans. The President’s 2010 Budget lays the groundwork for future establishment of a system of automatic workplace pensions, to operate along side Social Security, that is expected to dramatically increase both the number of Americans who save for retirement and the overall amount of personal savings for individuals. Under this proposal, employees will be automatically enrolled in workplace pension plans. Employers who do not currently offer a retirement plan will be required to enroll their employees in a direct-deposit IRA account that is compatible with existing direct-deposit payroll systems. Employees may opt-out if they choose.
Experts estimate that this program will increase the savings participation rate for low and middle-income workers from its current 15 percent level
to around 80 percent. In addition, the Budget proposes to expand retirement savings incentives for working families by modifying the existing Saver’s Credit to provide a 50-percent match on the first $1,000 of retirement savings for families that earn less than $65,000. The credit would be fully refundable to ensure that savings incentives are fair to all workers. |
Last edited by Dan Kohn on Fri Feb 27, 2009 11:58 am; edited 1 time in total |
|
| Back to top |
|
 |
Tom_T
Joined: 29 Aug 2007
Posts: 181
|
| Posted: Fri Feb 27, 2009 11:45 am Post subject: |
|
|
| If this is a government-managed pension, then all that tells me is that it's a new form of Social Security. Where is this account going to be? Invested in what? Who manages it? Is the money going to be used for something else, the way Social Security is, thus leading to a "pension crisis" someday? |
|
| Back to top |
|
|
Dan Kohn
Joined: 26 Jun 2007
Posts: 1504
Location: New York, NY
|
| Posted: Fri Feb 27, 2009 11:47 am Post subject: IRA |
|
|
| Focus on the term "direct deposit IRA" not pension. It implies that individuals can put the money with any institution that accepts IRAs, and it would probably have the same rules as to what you can invest in. |
|
| Back to top |
|
|
Tom_T
Joined: 29 Aug 2007
Posts: 181
|
| Posted: Fri Feb 27, 2009 11:53 am Post subject: Re: IRA |
|
|
| Dan Kohn wrote: | | Focus on the term "direct deposit IRA" not pension. It implies that individuals can put the money with any institution that accepts IRAs, and it would probably have the same rules as to what you can invest in. |
I'm not too confident about determining what is "implied" when the government announces a new plan. We'll see... |
|
| Back to top |
|
|
yobria
Joined: 20 Feb 2007
Posts: 2042
Location: SF CA USA
|
| Posted: Fri Feb 27, 2009 11:58 am Post subject: |
|
|
| Tom_T wrote: | | If this is a government-managed pension, then all that tells me is that it's a new form of Social Security. Where is this account going to be? Invested in what? Who manages it? Is the money going to be used for something else, the way Social Security is, thus leading to a "pension crisis" someday? |
Yeah and all the transportation items in the budget involve horse and buggies. After all, they'd have to do things exactly like 100 years ago, right?
Nick |
|
| Back to top |
|
|
tfb
Joined: 19 Feb 2007
Posts: 3584
|
| Posted: Fri Feb 27, 2009 1:03 pm Post subject: |
|
|
My read is it's just requiring the employers to offer direct deposit to a personal IRA and the enrollment is automatic. It's not an employer sponsored plan.
_________________
The Finance Buff |
|
| Back to top |
|
|
Valuethinker
Joined: 11 May 2007
Posts: 12890
|
| Posted: Fri Feb 27, 2009 1:05 pm Post subject: |
|
|
| tfb wrote: | | My read is it's just requiring the employers to offer direct deposit to a personal IRA and the enrollment is automatic. It's not an employer sponsored plan. |
Cass Sunstein and Richard Thaler
Nudge
http://yalepress.yale.edu/book....0300122237
Sunstein was a colleague of Obama's at Chicago Law School, Thaler is at the Dept of Economics.
This is straight out of their playbook.
The idea is that if you tilt the decision table, people make better money decisions. eg automatic enrolment.
| Quote: |
Every day, we make decisions on topics ranging from personal investments to schools for our children to the meals we eat to the causes we champion. Unfortunately, we often choose poorly. The reason, the authors explain, is that, being human, we all are susceptible to various biases that can lead us to blunder. Our mistakes make us poorer and less healthy; we often make bad decisions involving education, personal finance, health care, mortgages and credit cards, the family, and even the planet itself.
Thaler and Sunstein invite us to enter an alternative world, one that takes our humanness as a given. They show that by knowing how people think, we can design choice environments that make it easier for people to choose what is best for themselves, their families, and their society. Using colorful examples from the most important aspects of life, Thaler and Sunstein demonstrate how thoughtful “choice architecture” can be established to nudge us in beneficial directions without restricting freedom of choice. Nudge offers a unique new take—from neither the left nor the right—on many hot-button issues, for individuals and governments alike. This is one of the most engaging and provocative books to come along in many years.
Richard H. Thaler is the Ralph and Dorothy Keller Distinguished Service Professor of Behavioral Science and Economics and the director of the Center for Decision Research at the University of Chicago’s Graduate School of Business. Cass R. Sunstein is Karl N. Llewellyn Distinguished Service Professor of Jurisprudence, University of Chicago Law School and Departent of Political Science.
|
|
|
| Back to top |
|
|
Murray Boyd
Joined: 19 Feb 2007
Posts: 741
|
|
| Back to top |
|
|
tfb
Joined: 19 Feb 2007
Posts: 3584
|
| Posted: Fri Feb 27, 2009 1:30 pm Post subject: |
|
|
If it's going to be automatic, I imagine they can't make it default to Roth because they don't know if the employee qualifies for Roth. Contributions cannot be pretax either because the employer doesn't know if the employee qualifies for a deduction. It's up to the employee to figure out whether they qualify for a deduction or not at tax time. If the employees also contribute to a personal IRA outside of the employer, they will have to make sure they don't exceed the overall contribution limit for all IRAs because the contributions from the employer are unpredictable if it's based on % of pay due to hours worked, overtime and bonus. It's going to be messy for some people.
_________________
The Finance Buff |
|
| Back to top |
|
|
Forttoth
Joined: 01 Mar 2009
Posts: 1
|
| Posted: Sun Mar 01, 2009 2:00 pm Post subject: |
|
|
| This is an intriguing idea, for which the marketplace has already designed some measure of product solutions. I think they look a whole lot like the old 403b programs, except for the mandatory piece. Being a new member, I can't give you the link, but the name of the blog is Bussiness of Benefits where I discuss this in more detail. |
|
| Back to top |
|
|
ziggy29
Joined: 10 Mar 2008
Posts: 915
Location: Texas Hill Country
|
| Posted: Sun Mar 01, 2009 2:36 pm Post subject: |
|
|
IMO, let's stop tinkering around the edges. Maybe this should just be a national pension fund that's portable, annuitized once someone reaches a certain age.
I know I'd feel a lot better if I had more pension and less 401K in my retirement right about now. |
|
| Back to top |
|
|
|
Wiki
FAQ
Search
Memberlist
Usergroups
Register
Profile
Log in to check your private messages
Log in
