Good but not enough. That's how some academics and advisers characterize President Barack Obama's plans to help Americans save more for retirement.
Obama wants to expand tax credits that reward retirement savers, and he wants to require all employers to provide workplace-based retirement-savings plans, the so-called automatic IRAs.
The president's proposals are based on research by behavioral-finance specialists, but some experts say the measures wouldn't go as far as they should and ignore other equally large -- if not larger -- financial issues.
"Generally, I think the proposals could be helpful in strengthening the retirement security of working Americans," said Jodi DiCenzo of Behavioral Research Associates. "As with anything, the details are important."
Here's a closer look at some of Obama's retirement-related proposals and what experts had to say in response.
Expanding the saver's credit
The Obama administration is proposing to expand and simplify the saver's credit by matching 50% of the first $1,000 of contributions by families earning up to $65,000 and providing a partial credit to families earning up to $85,000.The administration also wants to make this tax credit refundable, even if the taxpayer has no income tax liability.
Research has shown, for instance, that 34% of all eligible taxpayers who could claim the credit don't. Other research, released by Transamerica in 2008, indicated that more than 80% of American workers with household incomes below $50,000 weren't even aware of the saver's credit.
The automatic IRA
Obama wants employers who do not now offer retirement plans to enroll their employees in direct-deposit individual retirement accounts, unless the employees opt out. That measure would, in effect, create employer-sponsored retirement plans for 78 million workers, the roughly 50% of working Americans who now don't have such plans at work.Under the proposal, a worker would automatically have 3% of pretax earnings go into an IRA. The worker could increase the amount of the automatic deposits or opt out altogether. The money would be placed into a diversified portfolio, or the worker could invest as he or she saw fit.
About half of all workers cannot save for retirement through their jobs because their employers -- mostly small companies -- don't offer retirement plans, according to AARP. What's more, few of those workers open IRAs on their own.
Gregory G. Seals, the director of fixed income and behavioral finance at the CFA Institute, said that research in behavioral economics has proved the use and value of automatic IRAs. The research shows that "humans routinely make irrational economic decisions and that they can be encouraged to make better financial decisions which improve their retirement security," Seals said.
Continued: Updating 401k regulations
