Changes to 401(k) Plans Under Consideration

Congress is debating possible changes to the 401(k) retirement plans employers offer their employees. Some of the ideas being discussed by Senators and Representatives would favor employees, some would benefit the federal government. Retirement plans are a hot topic for two important reasons, both of which involve money. Americans are not good at saving for retirement. According to the National Institute on Retirement Security, six out of 10 households do not save enough to maintain their current standard of living in retirement. In addition, Social Security does not have enough money to support future generations’ retirement needs. More workers will be using the Social Security funds than are putting money into the plan. Congress also frequently has dipped into the fund to pay for other projects and services.

The other reason is that Congress is looking for ways to raise revenue to offset historic tax cuts promised by President Donald Trump. Employees currently can contribute up to $18,000 a year and not pay taxes on those earnings. Employees who are age 50and older are allowed to save as much as$24,000 a year to “catch up” on their retirement savings.

Even though retirees eventually pay taxes on the savings, the federal government would like to collect those taxes now rather than later. Thus, Republicans have floated the idea of limiting the amount of tax-free money workers can save for retirement to $2,400 annually. This change could raise billions over the next 10 years. However, President Trump told reporters, and wrote on Twitter, that he was not in favor of this change and that he wanted to preserve existing retirement tax breaks, which he believes are very important to the middleclass. Congress is also looking at proposals that would make it easier for employees to save. Most of the ideas revolve around 401(k) retirement plans. Here are a few ideas that could have a positive effect for you and your employees.

Some employers automatically enroll their employees into their company’s 401(k)plan. Employees can opt out, but most staying the plan and don’t miss the money that’s taken out. Proponents of auto-enrollment want Congress to require employers to direct six percent of every employee’s salary to a 401(k)plan. Employees could elect to have more taken out. Another proposed automatic enrollment feature is a requirement to automatically increase contributions by one percent each year to a maximum of 12 percent.

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