Both the federal and the state government are working quickly o proposing laws in order to help people who are saving for or are in retirement.
This year, the federal government has introduced the “my Retirement Account” (myRA) which is a new type of retirement plan that helps those who can’t avail for employer retirement plans.
US President Barack Obama, on the other hand, has proposed several changes in the US retirement system; this includes automatic enrollment to IRAs for those who cannot avail workplace retirement plans, tax deductions for employers who offer auto-IRA to their employees, and putting a lifetime limit of $3.4 million in IRA balances.
In addition, Senator Susan Collins, R-Maine, the chairman of the Senate Special Committee on Aging, also introduced a bipartisan legislation that encourage small business employers to offer retirement plans to their workers and give them incentives that will allow them to save up for retirement.
However, all the Lexington law reviews make us think: Are there any other laws that would help Americans who desire to retire one day or those who want to keep decent living standards during retirement?
Make Retirement Plan mandatory
Many states have proposed laws that mandate the workplace to have IRA programs for employees; lllinois was the first to propose, however, other states, including California and Maryland, are not far behind.
Michael Callahan, the president of Edu4Retirement based in Southington, Connecticut and a member of the Retirement Security Board of Connecticut, said, “In general, the voluntary system has not been successful because of the onerous rules of the Employee Retirement Income Security Act of 1974 (ERISA). The cost of starting and maintaining a plan and the fiduciary liability associated with running a plan are too costly for most companies.”
Furthermore, he added, “If a small business maintains a qualified retirement plan and if more than 60% of the account balance belongs to key employees, primarily owners and family, the plan is considered top heavy and then the company is required to put in 3% of each employees’ compensation.”
However, if the company launces an IRA deferral program, then there will be no top heavy requirements.
Don’t Tie Retirement to your Workplace
According to Rob Schmansky, a certified financial planner with Clear Financial Advisors based in Livonia, Michigan, you shouldn’t tie your retirement to your employment.
He said, “Just because you work at one hospital versus another doesn’t mean you should have twice the amount you can save in a 457 plan, for example. We should all be able to save the amount in any given year, not matter if our employer offers us the option.”
In addition, another issue that should be addressed is that there should be a law that aims to help workers to save as much for their retirement as other workers.
Schmansky said, “There are a lot of problems with our employment-based system. If you are a participant in a plan for part of the year or are part-time worker, you may not be allowed to put the maximum into these plans even if you are able.
Require Investor Education
Richard Behrendt, a director of estate planning at Annex Wealth Management based in Elm Grove, Wisconsin, sees the importance of requiring investor education.
“The assertion that workers don’t have access to retirement savings plans is simply not true,” he said. People with W-2 income below the phase-out ranges can contribute up to $5,500 yearly to IRA. In addition, many of our workers can avail workplace retirement programs.
“The problem is not access, the problem is participation. What is the solution? One word: education. I’d rather see state and/or federal awareness programs to educate Americans about the importance of planning and saving for retirement. Let’s get people to utilize the programs we already have,” he added.