February 12, 2012

CNN Money Reporter Says Obama ‘Put in Place’ Automatic 401(k) Enrollment Provision Originating in 1998

CNN LogoOn February 2, Blake Ellis at CNN Money (HT to a NewsBusters tipster), in an item which treated minor regulatory changes relating to annuities as some kind of “rescue plan” for retirees, gave President Obama credit for “measures … (he) has put in place to help Americans save for retirement, including automatic enrollment in 401(k)s.” There’s no word on whether Ms. Ellis also believes that Obama hung the moon, but it wouldn’t surprise me if that were the case.

Somebody needs to tell Ms. Ellis that a “History of 401(k) Plans” published by the Employee Benefits Research Institute seven years ago tells us that the critical dates relating to employers’ ability to automatically enroll new and eventually existing employees in their 401(k) plans (subject to the employee’s ability to proactively decline if he or she chooses) go back to 1998 and 2000, many years before Obama was sworn in as a U.S. Senator (bolds are mine):

1998⎯IRS issued Rev. Rul. 98−30, which gave a stamp of approval for employers to make “negative elections” (i.e., automatic enrollment) into 401(k) plans for newly eligible employees (“negative election” allows workers to be automatically enrolled in their employer’s retirement savings plan if they take no action).

2000⎯IRS Rev. Rul. 2000−8 provided additional guidance on “negative elections” by allowing automatic enrollment in 401(k) plans for already-eligible employees who are deferring at a rate that is less than the automatic enrollment rate.

Here are excerpts from the rest of Ms. Ellis’s report:

Obama’s latest retirement rescue plan: Annuities

The Obama administration proposed new rules Thursday to help retirees make their savings last throughout their lifetime — by investing in annuities.

By taking out some of the regulatory roadblocks that have made annuities less attractive for employees and employers to add them to their retirement plans, the government is hoping to give more Americans ways to keep income flowing later in life.

Annuities are investments that pay out fixed amounts of income at a future date. Depending on the type of annuity, you can receive payments on a monthly, annual or lump-sum basis.

The retirement rescue plan, which was announced in a joint press release by the Internal Revenue Service and the Treasury Department, comes at a time when an increasing number of Americans are being forced to wait longer to retire and find themselves without enough money to live comfortably once they do reach their golden years.

… Partial annuities: The first proposal would offer employees more options when it comes to how they cash out their pension plans at retirement. Upon retirement, employees typically face the option of either cashing out their pension or getting a lifetime income stream through an annuity. For many retirees, it’s often much more appealing to just take the lump sum.

Yet, this option often leads them to come up short on funds later on in retirement.

… Longevity annuities: The government also wants to make it easier for employees to invest in longevity annuities through their 401(k)s and IRAs. To do so, it wants to provide relief from minimum distribution requirements that could cause them to run out of money in retirement.

Two points:

  1. Even if it’s not available from the employer’s plan, retiring employees have always had the ability to partially annuitize their retirement fund by first directly transferring their money to an IRA and then deciding how much to annuitize. Given that fact, one could argue that telling employer plans that they must allow for partial annuitization might needlessly increase the costs of plan sponsorship.
  2. The only reason the minimum distribution rules exist is that the government wants to start taxing money which has legally avoided tax until the age at which a retiree has to start taking such distributions (usually 70-1/2). It would be interesting to know just how much accelerated tax is collected because of these rules, because they are cumbersome, confusing, and often inadvertently violated. If the amount of tax involved is as negligible as I believe it is, why not just scrap the rules entirely (especially because the tax becomes due once the person retiree dies, and normal estate tax-related exemptions usually don’t apply)?

A final note to Ms. Blake: Characterizing the proposed annuitization regs as some kind of “rescue plan” is a grandiose exaggeration of what they are and what they accomplish, and giving Obama credit for conceiving them is ludicrous (as doing so would be for any president). This is relatively mundane stuff presidents leave to the bureaucracy to conceive and implement. It’s likely that Obama didn’t even know the regs were coming until just before they were issued. So please stop it already with the knee-jerk glorification of Dear Leader.

Cross-posted at NewsBusters.org.


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