Finance News & Insights

Obama's new changes for your retirement plan

financial-analysis
Of course, everyone thinks it’s a smart idea for people to save for their golden years. But now your company’s going to have to take a much more active role in getting them to do it!

IRS just issued a slew of new rulings and procedures on 401(k)s and other retirement plans.

The goal: to increase ways for employees to sock money away.

It’s all part of President Obama’s new plan, Retirement Security for American Families.

Here’s a rundown of the five biggest changes you’re facing.

Change #1: Easier Automatic Enrollment

The surest way to get employees saving for retirement: Don’t give ’em a choice!

Still, especially for smaller firms, the hassles associated with adding an automatic enrollment feature kept them from putting it in place.

Those hurdles are now gone.

Under Obama’s new plan, as long as your company adopts pre-approved automatic enrollment language, you can amend your plan to get that feature in place – no case-by- case IRS green light needed.

Cite: For sample language, click IRS Notice 2009-65, at www.irs.gov/pub/irs-drop/n-09-66.pdf

Change #2: Help with Automatic Contributions

Getting employees saving is one thing. Keeping them contributing is another.

That’s why some companies are embracing features like automatic escalation. Still, a large number of organizations have yet to latch on.

Much of the reason? Confusion over this feature.

To get more firms to offer auto escalation, IRS issued a new ruling explaining how to incorporate it into your 401(k).

Revenue Ruling 2009-30 spells out how employers can work this feature into their plans.

Cite: RR 2009-30, at www.irs.gov/pub/irs-drop/rr-09-30.pdf

Change #3: New features for SIMPLE plans

If your company offers a retirement plan option other than a 401(k), you’re in for changes too.

SIMPLE-IRA plans are particularly attractive to smaller businesses because they’re easier to administer. But auto enrollment wasn’t an option.

No longer. IRS is now allowing interested firms to start auto enrollment in SIMPLE-IRAs.

The only caveat: Employees must have the ability to opt out.

Cite: IRS Notice 2009-66, at www.irs.gov/pub/irs-drop/n-09-66.pdf

And if you want to add an auto contribution feature to your SIMPLE-IRA, you’ll find sample language here: IRS Notice 2009-67, at www.irs.gov/pub/irs-drop/n-09-67.pdf (Again, you’ll get automatic approval.)

Change #4: Rolling Unused Leave into 401(k)s

This next change is a hot issue this time of year: What happens to unused vacation or sick time?

Many employers have adopted a use-it-or-lose-it stance. Others pay folks for their accrued time.

There’s a new option in the mix: Roll that money into a retirement plan, either by doing it for employees or letting them do it themselves.

Cite: For guidance on how to do it, check out Revenue Ruling 2009-31, at www.irs.gov/pub/irs-drop/rr-09-31.pdf

Change #5: Employee Help for Retirement Rollovers

It’s a tough one your Benefits folks likely face: what to do with employees’ retirement savings when they leave your company.

You have new help in explaining choices (and meeting notice requirements): IRS Notice 2009-67. The document offers a simplified “rollover roadmap” to smooth the process.

Cite: Notice 2009-67, at www.irs.gov/pub/irs-drop/n-09-67.pdf

Info: For a complete rundown of the changes, click www.irs.gov/ retirement/article/0,,id=212061,00.html

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  • Mindy

    The final link in this article does not work. Also the cite for the rollover roadmap seems to be a sample amendment for adding automatic enrollment? I didn’t see anything about rollovers, I don’t think.

  • David Nieskes

    Will there be any changes to New York State Retirement (Municipalities) requiremnts???

  • Southern Belle

    That’s all well and good … 401k is a good thing and I’d still be contributing if I was working full time and my old house was sold to pay down on my new one!! I had to take a 40% cut in pay and am just barely surviving … and will owe taxes! The best thing he can do right now is get everyone working full time at their old salary and get back what we all lost from our 401ks last year. Personally, I’m a littel gun-shy. I only have 5 years before I’m supposed to be able to retire … but not at this rate. Thank God Social Security wasn’t privitized … it would have been worse than Enron.

  • Elizabeth

    401(k) was great in early theory. An extra place to put personal contributions for retirement. I do mean extra as in ADDITIONAL.

    Too bad 401(k) really just gave businesses the green light to stop giving you any money by dumping the old pension plans!! Anyone financially strapped and cannot make contributions, get zilch from their employer. In all fairness, employer contributions should put in for all employees rather than penalizing those unable to contribute.

  • Tommy

    As the president of a 26 year old printing company, I am tired of hearing that I should contribute any more than I already do. My employees used to just borrow from the pension plan like it was their bank so I went into a 401K plan so if they wanted to waste their retirement on mismanaged loans, it would be their money. Some
    employees don’t understand that owners go through tough times too and struggle just as hard in these times.
    The government needs to stop dipping into social security and invest that money wisely so people could retire reasonably on their hard earned money. Everyone is forced to pay into social security except government employees. If they were forced to have the same benefits as the rest of us, the system would change so that people could retire on social security. Until that happens, we have to supplement with additional plans to go around their short sighted planning. The government needs to stop spending our retirement on people that have never contributed to it.

  • Thumper

    “In all fairness, employer contributions should put in for all employees rather than penalizing those unable to contribute.”

    Spoken like a true liberal Marksist!!!! Socialism is going to be wonderful isn’t it???? Obama’s going to take care of us all!!!!

    When are we going to learn to be responsible for ourselves?!?!?!?!

  • Mike

    The new regs. sound harmless enough, even helpfull. But what is the Obama Administration really telling us?

    That they are begining to guide (force) us down the slippery slope to a manditory retirement savings account for all working Americans. But don’t worry the Administration knows better than you and I what we should do with our money. Besides once all the workers have a their own retirement savings accounts the Administration can use Social Security for better purposes, just ask them!

  • Tommy

    They are already giving social security benefits to people that have never paid into it and continue to starve lifetime payers,(like my mother). She gets a measly 1200.00 per month after paying in for 40 years and some nonpayers get twice that. What gives? Social security was the last retirement plan that the gov forced on us, and we see how that money was spent. NO MORE! We need to be freed from all of this gov control and invest for ourselves. I would be much better off if I had invested all of the social security monies that have been taken from me over the years. That money was just squandered by the gov and all they ever do is tell us we had better come up with a new plan for retirement because they are giving our money away faster than we can put it in. I hope everyone realizes just how many people die every year and don’t collect their money. Still, the gov is running out. Vote all incumbents out next election, it is our only chance to send the message!

  • Claire

    Do the same rules apply for 403(b) plans? Ours is a defined contribution plan. If the employee contributes then the company contributes up to a max of 6%.

  • Helen

    Social Security was never designed to live off of. It was designed to suppliment retirement. READ THE HISTORY. Still, people who have not paid in, should not get it, or as in the case of only one spouse working, get a percentage of what the spouse earned. I am 3 years away from full retirement, and I can guareentee you that if my social security that I paid in, and the matching portion the employer has to pay, had been put aside in a private savings, that could not be touched, I would be much better off. The goverentment takes the money and re-distributes it as needed. I wish there was a bridge for this to happen in the future, for my children and grandchildren, but I cannot see that happening since the cash flows out, as fast as it flows in. It is not set aside, it is spent. The very biggest problem that I see, is that people believe that they are supposed to be able to live off social security. That is just not so, and it never has been. I been poor, I’ve had to collect aluminum cans to buy peanut butter to make it to the next payday, but I always saved and participated in any savings or retirement plan, Christmas saving club, anything that put the money away before I got it. Once I have it, it will be spent. People need to take control of their own lives, not only now, but for the future. We as Americans need to stand tall, and take care of ourselves and our families and quit giving it away.

  • Mike

    Thumper: Well said! Unfortunately I don’t think most people “get it” and probably won’t until its too late!

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