President Barack Obama has announced a number of new initiatives to promote retirement savings, a few of which have drawn the interest of employers and retirement plan providers.
The most notable of these initiatives, which he announced during his weekly radio address on Saturday, September 5, would enable workers to convert unused vacation time or overtime into cash in their retirement accounts.
Employers and retirement savings experts praised this initiative, but some expressed concern that it wouldn’t help to address the issue of younger workers not saving enough for retirement.
“It’s great for baby boomers—we have a lot of senior executives who have accrued a lot of vacation time and don’t use it,” said Marta Willgoose, an HR manager at HOK, a global architecture firm with 2,000 employees. “But the younger workers would prefer the vacation time.”
However, the fact that employees upon leaving a job could receive a check for unused vacation time, which they could deposit into their retirement savings, could greatly benefit younger workers, said John Kalamarides, senior vice president of retirement solutions for Prudential Retirement, a subsidiary of Newark, New Jersey-based Prudential Financial.
“That aspect is certainly aimed right at younger workers who have more regular job switching,” Kalamarides said.
Another of Obama’s initiatives calls for the Department of Labor to publish guidance for small employers making it clear that they can provide automatic enrollment and auto step-ups into their retirement savings plans.
Until now, it has been clear that the Pension Protection Act encouraged larger employers to offer auto enroll and automatic step-ups for their employees into their 401(k) plans, but it hasn’t been clear on whether smaller employers—those with 10 to 100 employees—would have the same protections with simple IRA plans.
“This gives smaller employers the opportunity to use auto enroll and auto escalation in a very simplified way,” Kalamarides said.
Another initiative calls for improving employee education about their options for tax-favored retirement savings.
The goal of the four programs is to address the lack of retirement savings that many Americans are facing, particularly given the recession, Obama said in his address.
“I’ve heard from so many who’ve had to put off retirement, or come out of retirement, to make ends meet,” he said. “And having too little in savings not only leaves people financially ill-prepared for retirement, but also for whatever challenges life brings. It places in jeopardy so many dreams, from owning a home to attending college.”