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Powell:There ought to be these retirement laws

Robert Powell
Special to USA TODAY
Steps can be taken to help Americans maintain a decent standard of living in retirement.

Federal and state policy makers are fast at work proposing laws to help those saving for or living in retirement.

Consider:

• The federal government this year launched the my Retirement Account (myRA), a new type of retirement plan aimed at helping Americans who don't have access to employer retirement plans.

• President Barack Obama just proposed several changes to the retirement system in the U.S., including auto-enrollment IRAs for Americans who don't have access to a workplace retirement plan; tax cuts for employers that offer auto-IRA plans to their workers; and putting a lifetime limit on IRA balances of $3.4 million.

• And Sen. Susan Collins, R-Maine, chairman of the Senate Special Committee on Aging, introduced bipartisan legislation to encourage small employers to offer retirement plans and provide incentives for employees to save more for retirement.

    But all these proposed laws got us thinking: What are some other laws that could really go a long way toward helping Americans who have designs on retiring someday or who want to maintain a decent standard of living in retirement? Here's what experts had to say.

    Make retirement plans mandatory. Several states have passed laws to mandate IRA programs in the workplace. Illinois was the first, but other states, including Maryland, Connecticut, Massachusetts, California and several others, are not far behind.

    But such plans should be mandated across the nation. "In general, the voluntary system has not been successful because of the onerous rules of the Employee Retirement Income Security Act of 1974 (ERISA)," says Michael Callahan, president of Southington, Conn.-based Edu4Retirement and a member of Connecticut's Retirement Security Board. "The cost of starting and maintaining a plan and the fiduciary liability associated with running a plan are too costly for most companies."

    He notes, for instance, on such rule. "If a small business maintains a qualified retirement plan and if more than 60% of the account balance belongs to the key employees, primarily owners and family, the plan is considered top heavy and then the company is required to put in 3% of each employees compensation," Callahan says.

    If, however, the company establishes an IRA deferral program, then no top heavy requirements come into play.

    Don't tie retirement to your workplace. Retirement shouldn't be tied to employment, says Rob Schmansky, a certified financial planner with Clear Financial Advisors in Livonia, Mich.

    "Just because you work at one hospital vs. another doesn't mean you should have twice the amount you can save in a 457 plan, for example," he said. "We should all be able to save the same amount in any given year, no matter if our employer offers us the option."

    7/18/2014 11:38:08 AM -- Swampscott, MA, U.S.A  -- USA WEEKEND personal finance advice columnist, Robert Powell --    Photo by Josh T. Reynolds for USA WEEKEND ORG XMIT:  JR 131396 USAW - personal  7/18/2014 [Via MerlinFTP Drop]

    Other financial advisers agree. "As millions of Americans change jobs over their careers, instead of opening a new employer retirement account with each position, they should have the ability to open one Universal Retirement Account that stays with them from job to job," says Evan Bedel, a financial planner with Bedel Financial Consulting in Indianapolis. "This account would not be tied to an employer, which will help prevent employees from losing track of old retirement accounts, better track asset allocation and potentially decrease management fees."

    Another issue: There ought to be a law that helps all workers save as much for retirement as any other worker. "There are a lot of problems with our employment-based system," says Schmansky. "If you are a participant in a plan for part of the year or are a part-time worker, you may not be allowed to put the maximum into these plans even if you are able."

    A similar suggestion: Highly compensated employees, or HCEs, should not be restricted from maximizing 401(k) contributions just because other individuals are not saving for retirement, says Bedel. "Currently, some HCEs are unable to sufficiently save for their retirement goals within employer retirement plans due to other employees' poor financial decisions."

    Bedel also says employed Americans should have the opportunity to opt out of Social Security and be eligible for higher contribution limits within employer-sponsored retirement plans, such as 401(k), 403(b) and similar plans.

    Give employers access to multiple retirement plan providers in the workplace. With advances in direct deposit, Schmansky also says we should no longer be limited to the one provider our employer chooses for retirement. "Individuals should have the right to move their funds, just as individuals can in SEP and SIMPLE IRAs, to other providers," he says.

    Proof that this will work: "We see the benefits of competition in the 403(b) market where a plan may have several options," says Schmansky. "Often there will be fund share classes available at non-publicly available expense ratios."

    Mandate investor education. "There has been a trend in the last few years to develop laws and policy based on the behavioral finance findings within the academic research," says Victor Ricciardi, a finance professor at Goucher College in Baltimore and co-editor of Investor Behavior: The Psychology of Financial Planning and Investing.

    One example, Ricciardi gives, is the notion of nudging in which, workers are automatically enrolled into retirement plans. "However, this does not take into account the entire financial situation of the retirement saver," he says. What happens if the worker has $25,000 in credit card debt? This regulation should include investor education and a consultation with a financial planner. It is important for the patient/investor to receive an annual financial checkup with an expert."

    Another expert also sees the value in mandating investor education. Richard Behrendt, director of estate planning at Annex Wealth Management in Elm Grove, Wisc., says the laws and programs we already have to help workers save and invest for retirement do work.

    "The assertion that workers don't have access to retirement savings plans is simply not true," he says. Anyone with W-2 income below the phase-out ranges ($61,000-$71,000 if single, $98,000-$118,000 if married filing jointly) can contribute up to $5,500 ($6,500 if age 50 or over) annually to an IRA. Plus, many workers also have access to employer-sponsored retirement savings programs.

    "So, the problem is not access, the problem is participation," he says. "What is the solution? One word: education. I'd rather see state and/or federal awareness programs to educate Americans about the importance of planning and saving for retirement. Let's get people to utilize the programs we already have."

    Mandate payment for advice. Schmansky also says all Americans should have access to their funds to pay for the advice they need to manage their accounts. "The retirement crisis is one of a lack of advice," he says. "Distributions for independent financial advisers would increase retirement security and it would also increase competition from 401(k) providers to provide quality advice to participants."

    Automatic enrollment is fine, says Schmansky. "But it puts the product ahead of the advice," he says. "I've met so many that have cashed out their retirement plans, and not always because they needed to. They often regret that decision years later, but it's because they do not have the financial knowledge and adviser they trust that they are not making the right decisions or preparing adequately. Automatic enrollment doesn't fix the root cause of our retirement security problem."

    Make payday loans difficult to get. "It's far too easy for people to get payday loans," says Jason Hull, a financial planner with Hull Financial Planning in Fort Worth, Texas. "They create a vicious and downward spiral of dependency and almost usurious interest rates. Therefore, they need to be much more difficult to obtain."

    Hull's recommendation: "A three- or five- business day waiting period would help the matter."

    What's more, Hull says there ought to be a ban on payday lenders locating themselves within a mile or some short distance of any military installation. "They seem to prey on the military so often," he says.

    Robert Powell is editor of Retirement Weekly, contributes regularly to USA TODAY, The Wall Street Journal and MarketWatch and teaches at Boston University.

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