Biden's Task Force Seeks to Make 401(k)s Safer


Vice President Joe Biden Friday proposed updating 401(k) regulations to make the current system "safe, transparent, and well regulated" in the first annual report of the Middle Class Task Force, which he chairs. These proposals will need to pass Congress before they can be implemented.

In introducing these regulations, the task force said in its report, "We need to do more to give families better choices to reach a secure retirement. To ensure workers have good options to save for retirement, and to provide workers with all the information they need to make the best choices about their retirement savings."

Key new regulations proposed include:

  • Improving the transparency of 401(k) fees to help workers and plan sponsors make sure they are getting investment, record-keeping, and other services at a fair price;

  • Encouraging plan sponsors to make unbiased investment advice available to workers, helping workers avoid common errors that undermine retirement security, while providing strong protections against conflicts of interest;

  • Promoting the availability of guaranteed lifetime income products, which transform at least a portion of retirees' savings into guaranteed future income, reducing the risks that retirees will outlive their savings or that their living standards will be eroded by investment losses or inflation;

  • Reviewing and requiring clear disclosure regarding target-date funds, which automatically shift assets among a mix of stocks, bonds, and other investments over the course of an individual's lifetime Due to their rapidly growing popularity, these funds should be closely reviewed to help ensure that employers that offer them as part of 401(k) plans can better evaluate their suitability for their workforce and that workers have access to good choices in saving for retirement and receive clear disclosures about the risk of loss.

The report did not include any further details about specific language for these new regulations, leaving that up to Congress.

Automatic for the People

In addition to the new regulations, the task force called for the establishment of automatic Individual Retirement Accounts. The administration wants to require most employers who do not currently offer a retirement plan to enroll every employee in a payroll-deduction IRA unless the employee opts out. This provision received letters of support from the AARP, as well as the Heritage Foundation and the Retirement Security Project, which jointly developed the concept.

The Retirement Security Project, which is operated by the Georgetown Public Policy Institute, estimates that 78 million American workers have no employer-sponsored retirement savings plan. These automatic IRAs will also be available for self-employed workers, for independent contractors and for anyone changing jobs. In its letter of support for the plan, the AARP said, "Auto IRA will provide an easy way for Americans to save their retirement at work through payroll deductions." It will also enable employees "to invest in accounts they can take with them when they change jobs."

To help ease the financial strain of donating to an Automatic IRA, the task force also recommended that the Saver's Tax Credit be simplified and expanded, to provide a 50% match on the first $1,000 of retirement savings for families earning up to $65,000 and provide a partial credit to families up to $85,000. It also recommended making this tax credit fully refundable.

The task force made several other recommendations, among them:

  • A bigger child-care tax credit for middle-class families, and help for families caring for seniors and people with disabilities;

  • A cap on student loan payments and a reform of student lending;

  • The passage of the Employee Free Choice Act;

  • More controls over government contracting to "prevent government contracts from being awarded to employers that violate tax, labor and employment, fraud or environmental laws."

You can read the full report at the task force's Web site.