Congress Improves 401(k) Retirement Accounts Yet Again

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The must-pass defense authorization bill includes a set of provisions to improve 401(k) retirement accounts that Democrats were unable to pass as a standalone bill earlier this year. The Wall Street Journal summarizes them:

One prominent provision of the legislation passed Thursday, which President Trump is expected to sign, encourages 401(k) plans to replicate a feature of old-fashioned pensions by offering [annuities] with guaranteed income payments. The legislation also seeks to expand retirement plan coverage by making it easier for small companies to join together to offer 401(k) plans and share administrative costs. An estimated 30% of private-sector employees work for employers that don’t currently offer a way to save for the future.

….To encourage workers to save more, the legislation allows employers that automatically enroll workers in certain 401(k) plans to automatically raise employees’ savings rates to 15% of annual earnings over time, up from a 10% cap now. Other features of the legislation include a provision requiring employers to allow certain part-time workers to participate in 401(k) plans.

The downside of annuities, of course, is that they tend to be fairly expensive. “Given the prevalence of high cost, low-quality annuities, we don’t start with the thought that this is a great idea,” said Barbara Roper, director of investor protection at the nonprofit Consumer Federation of America. However, greater competition may lead to lower costs if annuities prove popular with 401(k) buyers.

Generally speaking, Congress seems open to the idea of improving 401(k) plans and making them more widely available, especially to low-income workers. The 2006 reforms have worked well so far, and these new changes should improve 401(k) accounts even further. This is nice to see, since old school pensions are gone and 401(k) pensions are here to stay, whether we like it or not.

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