Obama Announces Initiative to Increase Retirement Savings Rate

President Barack Obama announced a new initiative on Saturday, geared towards helping citizens increase their retirement savings and the overall savings rate, which had hovered around zero for several years preceding the recession .

“The fact is, even before this recession hit, the savings rate was essentially zero, while borrowing had risen and credit card debt had increased, half of America’s work force doesn’t have access to a retirement plan at work. And fewer than 10 percent of those without workplace retirement plans have one of their own,” President Obama said Saturday.

Obama’s proposal includes:

Encouraging small businesses to automatically enroll their employees into 401k plans, something many larger companies do already. Research has shown that if workers are automatically enrolled and have to specifically request to not take part in a 401k plan, they are more likely to participate.

Allow citizens to receive their tax refund in the form of a U.S. Savings Bond. This would be available via a box on tax return forms that a person could check if they wished to receive a savings bond as their tax refund.

Make it easier for employees to contribute unused vacation or overtime to their retirement plan. Most employers who pay for unused vacation time (as opposed to those that have a “use it or lose it” system) simple cut a check for the unused vacation time or overtime.

The Treasury department and the IRS will also publish easy to understand instructions regarding the rules regarding retirement plans when a person leaves their job.

These are all administration actions, which will not require approval by Congress, so they should essentially be a done deal.

I like the fact that the government is encouraging companies to auto-enroll workers, and I think the ability to contribute unused vacation to a 401k plan is a pretty good idea as well. Although I am a fan of I bonds in general, (which are currently paying a paltry 0% for this 6 month period), I am not sure if too many people would take advantage of that with their tax refunds.

I think more should be done however. For example, how about allowing people to put a tax refund directly in a 401k account? After all, the government got free use of that money for a better part of a year, so they probably don’t lose much if that money goes untaxed. At any rate, I think focusing on increasing savings is a better idea than all of the government spending of late. What do you think?