Newspaper article The Christian Science Monitor

What's Cooler Than a Child-Care Tax Credit? Obama's Opt-Out IRA

Newspaper article The Christian Science Monitor

What's Cooler Than a Child-Care Tax Credit? Obama's Opt-Out IRA

Article excerpt

The child-care tax credit would increase, but an opt-out IRA is both one of the most interesting and least controversial of Obama's middle-class aid proposals.

President Obama and Vice President Biden laid out a package of middle class incentives and proposals Wednesday, including a child- care tax credit increase and limiting student loan payments to 10 percent of a graduate's income after factoring in a basic living allowance.

Intriguing ideas. But there's another White House proposal that's likely to get support from conservatives and liberals alike: so- called "opt out" retirement accounts for Americans who currently lack an employment plan, like a 401(k), from their employers.

Opt out sounds like a subtle variant of opt in programs, which account for three-quarters of American workplace retirement programs. But it makes a powerful difference, according to Cass Sunstein and Richard Thaler, authors of the book "Nudge." If people have to choose to participate in a savings program, fewer will sign up than if they have to choose not to participate.

"We have lots of evidence that it's a method that works extraordinarily well at overcoming inertia, laziness, mindlessness, and all the reasons that many people just never get around to joining a 401(k) plan," says Mr. Thaler, an economist at the University of Chicago. And by still offering a choice to opt out, it doesn't impinge on the many "responsible reasons why someone might not want to be saving on retirement, especially when they are young," he adds.

One 2007 Harris poll found that 98 percent of workers who opted for their employers automatic enrollment plans were glad they had the option. More importantly? Four in five who opted out also said they were glad to have the option, according to a December 2009 research paper from two economists at the Urban Institute.

Incentives for employers to create opt-out enrollment in retirement plans came into being with the Pension Protection Act of 2006. But so far, there's no program for those in workplaces without employer-sponsored savings plans.

The automatic IRA would work something like this. …

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