A look at some of the ideas contained in the 2017 federal budget.
Will workplace retirement plans be altered in the near future?
The White House will propose some changes to these plans in the 2017 federal
budget, with the goal of making such programs more accessible. Here are some of
the envisioned changes.
Will workplace retirement plans be altered in the near future?
The White House will propose some changes to these plans in the 2017 federal
budget, with the goal of making such programs more accessible. Here are some of
the envisioned changes.
Pooled employer-sponsored
retirement programs. This concept could save small businesses money. Current laws permit multi-employer
retirement plans, but the companies involved must be similar in nature. The White
House wants to lift that restriction.1,2
In theory, allowing businesses across
disparate industries to join pooled retirement plans could result in
significant savings. Administrative expenses could be reduced, as well as the
costs of compliance.
Would governmental and non-profit
workplaces also be allowed to pool their retirement plans under the proposal? There
is no word about that at this point.
This pooled retirement plan concept would
offer employees new degrees of portability for their savings. A worker leaving a job at a participating firm in the
pool would be able to retain his or her retirement account after taking a job
with another of the participating firms. Along these lines, the White House
will also propose new ways to make it easier for workers to monitor and
reconcile multiple workplace retirement accounts.2,3
Scant details
have emerged about how these pooled plans would be created or governed, or how
much implementing them would cost taxpayers. Congress will be asked for $100 million in the new budget draft to test
new and more portable forms of retirement savings accounts. Presumably,
many more details will surface when the proposed federal budget becomes public in
February.2,3
Automatic enrollment in IRAs. In the new federal budget draft, the Obama
administration will require businesses
with more than 10 employees and no retirement savings program to enroll their
workers in IRAs. This idea has been included in past federal
budget drafts, but it has yet to survive bipartisan negotiations – and it may
not this time. Recently, the myRA retirement account was created through
executive action to try and promote this objective.1,3
A lower bar
to retirement plan participation for part-time employees. Another proposal within
the new budget would allow anyone who has worked for an employer for more than
500 hours a year for the past three years to participate in an employer-sponsored retirement plan.2
A bigger
tax break for businesses starting retirement plans. Eligible employers can
receive a federal tax credit for inaugurating a retirement plan – a credit for
50% of what the IRS deems the employer’s “ordinary and necessary eligible
startup costs,” up to a maximum of $500. That credit (which is part of the general business credit) may be claimed for each of the first three years that the plan is in
place, and a business may even elect to begin claiming it in the tax year
preceding the tax year that the plan goes into effect. The White House wants
the IRS to boost this annual credit from $500 to $1,500.2,4
Also, businesses could receive an annual
federal tax credit of up to $500 merely for automatically enrolling workers in
their retirement plans. As per the above credit, they could claim this for
three straight years.2
What are
the odds of these proposals making it into the final 2017 federal budget? The odds may be long.
Through the decades, federal budget drafts have often contained “blue sky”
visions characteristic of this or that presidency, ideas that are eventually
compromised or jettisoned. That may be the case here. If the above concepts do
become law, they may change the face of retirement plan participation and
administration.
This material was prepared by
MarketingPro, Inc., and does not necessarily represent the views of the
presenting party, nor their affiliates. This information has been derived from
sources believed to be accurate. Please note - investing involves risk, and
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Federal tax penalty. This is neither a solicitation nor recommendation to
purchase or sell any investment or insurance product or service, and should not
be relied upon as such. All indices are unmanaged and are not illustrative of
any particular investment. 02042016-WR-1541
Citations.
1 - nytimes.com/2016/01/26/us/obama-to-urge-easing-401-k-rules-for-small-businesses.html
[1/26/16]
2 - tinyurl.com/je5uj3r [1/26/16]
3 - bloomberg.com/politics/articles/2016-01-26/obama-seeks-to-expand-401-k-use-by-letting-employers-pool-plans
[1/26/16]
4 - irs.gov/Retirement-Plans/Retirement-Plans-Startup-Costs-Tax-Credit
[8/18/15]