Commentary: The looming retirement crisis in America is more of an already here crisis. And it goes beyond the decline of Social Security benefits due to the lack of workers supporting those 10,000 boomers retiring per day. Pensions are unsustainable if not bankrupt. The 2007 economic crisis depleted peoples retirement plans. Take all that and add to the fact that over 40 million American workers have zero access to retirement benefits at work, and we have a systemic problem on our hands that President Obamas auto-IRA plan, first announced last year during his State of the Union address, is poised to positively impact big time.
Fact: 30 million additional people will have access to retirement benefits at work.
Additionally, there are practically zero out-of-pocket costs to the business due to tax incentives that are paid for by closing loopholes on retirement tax incentives for the 1% and wealthier. Example of this loophole: there are 300 extraordinarily wealthy individuals who are getting tax-preferred benefits on their IRAs that contain greater than $25 million dollars. That number will be reduced so that the tax benefit will cap at $3.4 million, which will deliver roughly $210,000 per year in retirement. One percent of workers will still receive a tax-benefit at a cap, while enabling more than 30 million individuals to save at work. There is no downside.
Helping the working poor
The Presidents plan, outlined in his State of the Union address this week, makes an enormous impact on a declining middle-class as well as the working poor. Since the so-called war on poverty was enacted by President Lyndon B. Johnson back in 1964, the ranks of the working poor has seen only a 4% decline (according to census data). While decreasing overall, it has increased in other critical areas, primarily with people in their working prime, aged 18-64 and by 16%. Another important statistic to pay attention to is the fact that 50.3% of working-poor families are led by females who live longer, and have less for retirement if anything more than Social Security.
By extending retirement benefits to include part-time workers, the Presidents plan does make an impact on the working poor who have been historically without this important benefit.
The unretired elderly who are looking to supplement their retirement through necessity will also see greater positive opportunity. Then there are the millennials retirement far from their perceptible reach, this may be their only shot outside of an (hopefully) overhauled Social Security system.
Technology has changed everything
The financial industry is absolutely to blame for the lack of access to retirement savings plans for small- and medium-sized businesses. This huge segment has been ignored based on being cost-prohibitive. That is also a legacy argument based on legacy systems. Technology is light years ahead now, and moving at a significant pace. There is simply no excuse for any business to not have access to retirement benefits, and there is, frankly, no sustainable argument for not pushing President Obamas plan forward.
Chad Parks is founder and CEO of Ubiquity Retirement + Savings, a provider of flat-fee-for-service retirement plans for small businesses.
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