President Trump’s recent executive order on retirement plans has analysts, money managers, and employee benefits experts scrambling to identity potential opportunities for retirement savers – and that’s a good idea right now, experts say.
“The statistics on the lack of retirement savings are simply staggering,” said Robert Johnson, Professor of Finance, Heider College of Business, at Creighton University.
“One in three Americans have nothing saved for retirement and an additional 23 percent have less than $10,000 saved.”
The executive orders, rolled out by the White House on August 31, focus on several main points, such as, adjusting the current requirement minimum distribution age and paving the way for more access to retirement plans for employees of small companies.
Easier access. For starters, the directive tasks Treasury and Labor to “make it easier for businesses to join together to offer Association Retirement Plans (ARPs), also known as Multiple Employer Plans,” the White House stated.
Less red tape. The executive order directs the Departments of Labor and the Treasury reduce retirement planning paperwork and administrative burdens – especially for small businesses.
Changes on withdrawal rules. Lastly, the Department of the Treasury will review the rules on required minimum distributions (RMDs) from retirement plans to see if retirees could keep more money in 401(k)s and Individual Retirement Accounts and not have to take funds out at current withdrawal deadlines. “This could allow retirees to spread retirement savings over a longer period of time,” the White House statement noted.
How do retirement planning experts and investment managers view the new executive orders? Industry insiders offer these key takeaways:
Increased access to retirement plans. According Erin Turley, a partner at McDermott, Will & Emery, in Dallas, Texas, adjustments to required minimum distributions and encouragement of open multiple employer plans would increase participant access to retirement savings and stimulate market growth. “Increasing access to retirement savings would be a major improvement over the current market, as many employers – not just small ones – lack adequate retirement savings programs because of costs and regulatory concerns,” Turley said. “The proposed increases in tax-deferred retirement savings assets; however, could force the government to raise other federal taxes to compensate for lost revenue,” she said.
Boosting MEP’s. The executive order also gives the Department of Labor 180 days to consider issuing regulations or other guidance to make it easier for businesses to participate in Multiple Employment Plans. “This suggests that the DOL is using its recent regulation on ‘association health plans’ as guidance,” said Turley. “The executive order grants the DOL wide discretion in its implementation.” The federal government will need to decide whether or not to issue guidance to expand access to retirement plans for part-time workers, sole proprietors, working owners, and other entrepreneurial workers with non-traditional employer-employee relationships. “That includes including potentially allowing them to participate in MEP’s,” Turley said.
Relaxing minimum distribution rules. Another key component of Trump’s executive order addressed minimum distribution rules. “These rules require minimum amounts to be withdrawn from traditional IRAs and 401(k) plans at age 70-1/2 that are included in the retiree’s taxable income,” said Johnson. “Relaxing these rules makes sense, as many Americans are working well past age 70 and are living longer. Their accumulated funds need to last longer and delaying required distributions would help early depletion of retirement accounts.”
Overall, the changes in 401(k) plans via the executive order could also be good for retirement savers by allowing more small businesses, especially those with 100 employees or less, to eliminate road blocks they face when it comes to establishing 401(k) plans for their employees.
“The changes will allow smaller companies to team up and work with multiple employer plans, which will reduce costs and give access to retirement saving vehicles, like
401(k) plans or Roth 401(k)’s, to even more workers in the United States,” said Calvin
Goetz, author of “Climbing the Retirement Mountain” and founder of Strategy
Financial Group in Phoenix, Ariz. “Both of these are appropriate changes that can help offset the retirement crisis that we’re facing in America, where people have not saved enough to live through retirement.”
The concept of being able to team up on a retirement plan is an interesting one for small business owners. “For my business, as an example, there aren’t many wine trade associations out there and since I’m more of a retailer than a winery, I can’t even join the big ones that do exist,” said Mark Aselstine, founder of Uncorked Ventures in San Francisco. “So, my opportunities to team up within my industry are basically zero.”
Small business owners say the new executive orders will give them more access to quality retirement plans, and make them more competitive in the marketplace.
“I’m about as big of a detractor of Trump’s as anyone, but he’s not wrong in terms of small business and administering and setting up retirement plans,” Aselstine said. “They’re expensive and cumbersome to set up, so anything that removes those type of roadblocks, is a good deal.”
Reform Is On The Way
Investment experts say that the White House executive orders are a good start in taking on what most Wall Street insiders agree is a legitimate U.S. retirement crisis.
“This is just a beginning,” said Johnson. “We need to have more political courage to solve this burgeoning crisis, and there is a major role that government can play.”
One need only look to Australia for a fresh and workable template on a potential U.S. retirement savings structure, Johnson said.
“In Australia, they use superannuation as a model – basically it’s a retirement income system that mandates employers contribute a percentage of an employee’s salary to individual retirement funds,” he noted. “Employees are encouraged, through tax incentives, to make additional voluntary contributions to these funds.”
Brian O’Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC’s Guide to Creating Wealth. He’s a regular contributor to major media business platforms. Brian may be contacted at email@example.com.
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