Obama Seeks to Expand 401(k) Use by Employers' Pooling Plans
(Bloomberg) -- President Obama will propose allowing small businesses to more easily pool 401(k) plans, in the hope that more Americans will adopt a crucial tool to save for retirement.
The proposal, to be included in his 2017 budget, represents Obama’s latest attempt to leverage an issue with some Republican support to both tick off an item on his agenda -- longstanding concerns about Americans’ retirement security -- and influence the campaign to succeed him.
Obama also will propose making it easier for job-hopping workers to track multiple retirement accounts and combine them, and he’ll ask Congress to provide $100 million to test new, more portable accounts. His budget will be released on Feb. 9.
“Workers without a retirement plan at work rarely save,” Jeff Zients, Obama’s National Economic Council director, told reporters on a conference call on Monday. “We know that economic security in retirement is a kitchen table issue.”
The stagnation of wages for middle-income workers, which has made saving for retirement more difficult, has been a blot on Obama’s economic record even as unemployment has been cut in half since the peak of the recession. It’s become a point of attack for the Republicans running to succeed him while the Democratic contenders, Hillary Clinton and Bernie Sanders, have made income inequality a central theme of their economic policies.
Approaching the end of his term, Obama has said that he hopes to work with Republicans on a few legislative priorities where they agree, such as an overhaul of U.S. sentencing rules to reduce prison terms for nonviolent drug offenses and trade.
Improving the administration and adoption of retirement savings accounts has the support of some Republicans, including Sen. Orrin Hatch of Utah, who introduced legislation in 2013 that would have allowed small employers to more easily offer pooled 401(k) plans.
Financial services companies that run and sell investments to the plans as well as workers who don’t have retirement accounts would benefit “if it’s done correctly,” said Michael Kreps, an attorney at the Groom Law Group in Washington, which represents employers, pension plans and financial services companies.
"They are recognizing that there’s bipartisan support for this and it’s something that could get done in 2016," Kreps, a former Democratic staff member of the Senate Health, Education, Labor and Pensions Committee, said of the White House proposal.
Obama is meeting today at the White House with the Democratic leaders of the House and Senate, Rep. Nancy Pelosi and Sen. Harry Reid, to talk about his 2016 legislative agenda. On Thursday he’ll talk with Democratic lawmakers at a retreat in Baltimore. The White House also is trying to arrange a face-to-face meeting with House Speaker Paul Ryan, a Wisconsin Republican. Those plans were temporarily disrupted by the snow storm that has shut down most of official Washington.
Current law allows limited combinations of employers’ 401(k) plans. Companies that band together must have “commonality” -- for example, a group of car dealerships, Labor Secretary Tom Perez said on the call.
“What we’re saying in this proposal is you shouldn’t have to be just auto dealers coming together to be able to benefit from this,” he said.
The White House says that allowing businesses to join together will reduce administrative expenses and make it cheaper to provide the accounts to workers. Obama won’t reveal what the changes will cost or how he plans to pay for them until he releases his budget.
Many people even a decade away from retirement haven’t saved enough, presenting a looming crisis that Obama is right to address, said Jared Bernstein, a researcher at the nonprofit Center on Budget and Policy Priorities in Washington and a former member of Obama’s economics team.
“It’s important because an increasing number of people are ill-prepared for the economic challenges they’ll face in retirement,” Bernstein said in an interview. “The administration, I can tell you as someone who used to work there, has long been aware of the problem.”
Last year, Obama created a retirement account called a myRA for people without 401(k) plans. The program doesn’t offer matching contributions from employers and doesn’t allow for investing in the stock market, but it also guarantees that participants won’t lose their savings. Savers through the program can invest only in a U.S. Treasury security guaranteed never to lose value.
His administration is expected to finish a regulation in the first quarter of the year that would require financial advisors to put their clients’ best interests first, called a “fiduciary” rule. It’s opposed by banks such as Morgan Stanley, Citigroup and Wells Fargo, as well as mutual fund companies, independent brokers and insurers.
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