President Relaxes 401(k) Rules in Move to Encourage Savings
Seiberg, Jaret, American Banker
To help Americans save more, President Clinton pledged Thursday to expand tax-free accounts and make 401(k) programs easier to join and administer.
"We have an obligation to deal with this issue and deal with it now," the President said at a White House summit on retirement savings. "We have to increase personal savings."
Effective immediately, companies may structure 401(k) plans so employees are automatically enrolled unless they specifically opt out, the President said. He predicted the move would boost 401(k) participation rates to 90%, up from the current 67%.
"It sounds like a small thing," he said. "But it could cause a large number of individuals to get started with saving."
President Clinton also said Congress should immediately change the tax code to reduce the maximum vesting period for 401(k) plans to three years.
"Eventually, we will have to find a way to let people invest without the vesting period," the President said, explaining that people who change jobs frequently never fully qualify for retirement benefits.
The President also urged Congress to offer a $1,000 tax credit to small businesses that create retirement plans. Currently, only 24% of employees in companies with fewer than 100 employees receive these benefits, he noted.
Earlier at the summit, House Speaker Newt Gingrich said he would try to reduce the paperwork companies must complete to establish retirement plans. "Government regulation ... makes it unnecessarily expensive for small businesses to operate pension plans," the Georgia Republican said.
To expand tax-free savings accounts, the President proposed allowing employees at companies without pension programs to contribute to individual retirement accounts through payroll deductions.
He also said he is committed to expanding tax-free savings accounts, but told the 239 summit delegates that he was unsure how to best accomplish that goal. "I invite you to give me your best ideas," he said.
In an interview following the President's speech, Senate Majority Leader Trent Lott said he supported expanding tax-free savings accounts and promised to work with the White House to boost savings rates. "We tried to expand those last year," he said, adding the administration opposed the idea at the time. …