Thursday, March 26, 2009

President Obama’s auto-enrollment retirement savings plan

President Obama recently proposed that employers without retirement plans should be required to establish an automatic retirement savings account (similar to an IRA) for all of their workers. The accounts would be funded by payroll deduction from workers’ paychecks.

Insurance Insight Group thinks this proposal makes a lot of sense. Workers have traditionally had a number of incentives available to them to encourage saving for retirement, such as the tax-deferral available in IRA’s and the employer-match available in many 401(k) plans. But it seems that the best way to encourage workers to save for retirement is the simplicity and automatic savings associated with payroll deduction. If it weren’t for payroll deduction, can you imagine how hard it would be for the average American family to pay their Social Security, Medicare, and income taxes?

President Obama’s proposal will also create opportunities for insurance agents. Up to now, insurance professionals have approached employers without retirement plans, trying to get these employers to offer 401(k) plans, SEP-IRA plans, or a variety of other plans to their employees. The insurance agents have been at a disadvantage because no such retirement plans are mandated by government, and also each of these plans costs the employer money both in plan contributions and administrative expenses. Under Obama’s proposal, employers without retirement plans would be forced to take action, and there is the additional incentive that these retirement savings accounts would be funded solely with employee contributions. So, the employer’s expense is limited to administrative expenses. To the extent that insurance professionals can offer these employers efficient solutions to this new mandate, they have an opportunity to earn ongoing commissions as these accounts are funded by employee payroll deductions.

For more on this, Insurance Insight Group's Principal and Actuary, Chris Conklin, answers a series of questions on this in an Q&A format posted on the Editor's Blog.

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