Bloomberg: Obama Offers Retirement Savings Plan for Workers Lacking 401(k)

Obama Offers Retirement Savings Plan for Workers Lacking 401(k)

“…This isn’t earth-shattering stuff,” said Brian Graff, the chief executive officer of the American Society of Pension Professionals & Actuaries. “But it is a step in the right direction to get more people saving for retirement, which I would think is a bipartisan issue…”

“I don’t expect this to get a lot of pushback,” said Graff, who discussed the proposal in advance with Treasury officials. He said it draws on an existing program that permits workers to purchase U.S. savings bonds through payroll deductions and adds “a retirement twist…”

Under the proposal, proceeds couldn’t be cashed out without a tax penalty until the depositor reaches retirement age, unlike ordinary savings-bond purchases, Graff said. The funds could be transferred to an ordinary IRA without penalty, he said….

The accounts aren’t as attractive as a typical employer-sponsored 401(k) because there is no employer match and only one investment option, Graff said…

Even so, he said, it may significantly boost retirement savings for middle- and low-income workers who don’t have access to a 401(k) account, Graff said.

Research has shown that middle- and moderate-income workers are likely to save for retirement when they can do so with a payroll deduction and are unlikely to do so when they don’t have that option, Graff said.

Among workers earning between $30,000 and $50,000 a year, 72 percent of those covered by an employer-sponsored payroll deduction retirement plan such as a 401(k) participate, while only 5 percent of those without such a plan set aside money through an individual retirement account, according to a 2010 analysis by the Employee Benefit Research Institute.

Participation in the Obama retirement savings program would be voluntary, Graff said.