PSCA Says President Obama's Budget is an Affirmation of 401(k) Plans But Careful Analysis is Required

CHICAGO – (Business Wire – March 3, 2009) – According to the Profit Sharing/401k Council of America (PSCA), President Obama’s Budget contains well-intended enhancements to increase retirement savings, but Congress should carefully examine them for unintentionally harmful consequences. 

President Obama’s Budget contains several provisions affecting retirement savings.  Two provisions are commendable – the modifications to the Saver’s Credit and the reform of asset tests for means-tested public benefit programs.  PSCA was an architect of the Saver’s Credit in 2001.  Increasing the income limits and making them refundable are significant improvements, and PSCA hopes that the asset tests reforms will exempt retirement plan savings from means-testing.

While PSCA greatly appreciates the President’s confidence in the ability of defined contribution plans to accumulate significant assets for retirement, two related provisions are problematic.  The Budget appears to require that all employer-provided 401(k)-type plans offer automatic enrollment of all eligible employees.  PSCA is a champion of automatic enrollment and played a key role in the 2006 legislation that supports this feature; however, PSCA is wary of mandating any particular retirement plan design.  A hallmark of the success of the defined contribution system is the flexibility to design a plan that meets the unique needs of a particular business and workforce.  In fact, that flexibility was critical to the introduction and development of automatic enrollment arrangements.  “While Washington favors a one-size-fits-all approach, this new mandate is sure to create a myriad of unintentional consequences,” said PSCA President David Wray. 

PSCA applauds the President’s efforts to increase retirement savings by those who are not offered a retirement plan at work.  However, PSCA urges Congress to carefully scrutinize the Automatic Workplace Pension proposal.  A 2007 study released by AARP raises several concerns about the effectiveness, cost, and complexity, for both employers and the government, which might result from this proposal.  A government-mandated program is very different from an employer proudly sponsoring a retirement plan to attract and retain employees and personally encouraging workers to participate.  A better approach might be to explore ways to increase voluntary small business retirement plan coverage before embarking on a mandatory program that may unintentionally make it more difficult for small employers to succeed. 

PSCA has a long and successful record of working with government partners to increase retirement security for American workers and looks forward to continuing those efforts with the Obama Administration and the 111^th Congress.

The Profit Sharing/401k Council of America (PSCA), a national non-profit association of 1,200 companies and their 6 million employees, advocates increased retirement security through profit sharing, 401(k) and related defined contribution programs to federal policymakers and makes practical assistance with profit sharing and 401(k) plan design, administration, investment, compliance and communication available to its members. PSCA, established in 1947, is based on the principle that “defined contribution partnership in the workplace fits today’s reality.” PSCA's services are tailored to meet the needs of both large and small companies with members ranging in size from Fortune 100 firms to small, entrepreneurial businesses.