White House looks to ramp up retirement savings programs

The Obama administration last week announced plans to require employers to give employees the option of enrolling in direct-deposit individual retirement accounts.

At a meeting of the Middle Class Task Force, President Barack Obama and Vice President Joe Biden, who is chairman of the task force, laid out that and other initiatives aimed at helping middle-class families. Providing economic security for such families “will be a big part of what we do in 2010 and all the way through the rest of the presidency,” White House communications director Dan Pfeiffer said last week.

At 11 meetings of the task force over the past year, the vice president has heard from parents, workers, and students coming out of college, said Jared Bernstein, chief economic adviser to the vice president.

Currently, 78 million working Americans, about half the work force, lack employer-based retirement plans.

Employers who don’t offer retirement plans would be required to enroll their employees in direct-deposit IRAs automatically unless the employees elected not to be enrolled in the plan. The contributions would be matched by expanding the saver’s tax credit for eligible families.

The administration said that it is streamlining the process for employers to enroll workers in 401(k) plans automatically. New tax credits would help pay employer administrative costs, and the smallest firms would be exempt.

The administration would issue rules to improve the transparency of 401(k) fees to help workers and plan sponsors make sure fees are reasonable, and rules to encourage plan sponsors to make unbiased investment advice available to workers.

The administration also would promote the availability of annuities and other forms of guaranteed lifetime income.

In addition, clear disclosures about target date funds would be required.

“Due to their rapidly growing popularity, these funds should be closely reviewed to help ensure that employers that offer them as part of 401(k) plans can better evaluate their suitability for their work force,” according to a fact sheet released by the White House.

The president also called for expanding tax credits to match retirement savings and enacting new safeguards to protect retirement savings.

The child and dependent-care tax credit for families making less than $85,000 a year would be raised to 35% of expenses, from 20%. All families making under $115,000 would be eligible for higher tax credits.

There would be a 35% credit of the expenses for families above $15,000 in adjusted gross income, which would phase down to 20% up to $43,000 in AGI and a 20% credit for all families earning above $43,000.

Student loan payments would be limited to 10% of discretionary income, and debt would be forgiven after 20 years of payments or 10 years of payments for people in public service. Currently, yearly payments are capped at 15% of discretionary income, and debt is forgiven after 25 years of payments, or 10 years of payments if in public service.

More support is also being offered to help families care for elderly relatives.

Mr. Bernstein declined to provide details on the cost of the initiatives or how they would be paid for. He said that cost details will be revealed in the budget, which is to be released this week.

Most of the initiatives are new versions of programs under discussion or already in place, Mr. Bernstein said. But many of them “reach much higher into the middle class” or go further in helping to alleviate squeezes on middle-class budgets, he said.

Mr. Bernstein said that the “No. 1 imperative” of the administration remains to create more jobs, and he touted the administration’s $787 billion stimulus package, which he said has created or saved 2 million jobs.

E-mail Sara Hansard at [email protected].