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5500 Preparer's Manual for 2012 Plan Years

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CCH® PENSION AND BENEFITS — 11/11/08

With Democratic Win, What Happens Now With Retirement Plans, Social Security?

from Spencer’s Benefits Reports: The next few years in employee benefits will be shaped by a Democratic President and a Democratic Congress. Even if President-elect Barack Obama follows through on all of his benefits proposals, as outlined below, those proposals must be championed by members of Congress and then passed in both the House and the Senate. Mr. Obama’s policy statements during the election campaign provide a guide to the direction of employee benefits legislation in the next few years, and the following provides some suggestions for the future in retirement plan legislation.

Automatic enrollment plan. Under the Obama proposal, employers that do not currently offer a retirement plan would be required to enroll their employees in a direct-deposit IRA account that is compatible to existing direct-deposit payroll systems. Employees could opt-out if they choose. Some estimate that this program could increase the savings plan participation rate for low and middle-income workers from its current 15% level to as much as 80%. Under this plan, the government would match 50% of the first $1,000 of savings for families that earn less than $75,000.Employees could opt-out by signing a written waiver. Even after enrollment, employees would retain the right to change their savings levels, reallocate investment portfolios, or end contributions to the account.

Bankruptcy laws. Mr. Obama supports putting retirement plan promises to workers higher on the list of debts that are protected in bankruptcy. This would restrict executive bonuses while protecting worker pensions; increase the amount of unpaid wages and benefits that workers can claim in court; and limit the circumstances under which retiree benefits can be reduced.

Disclosures. Mr. Obama’s proposals would establish annual disclosures to participants about pension funds’ investments, including full details about the projects in which the fund is invested in, the performance of those investments and appropriate details about probable future investment strategies.

Retirement income. Seniors making less than $50,000 per year would pay no more income taxes. This would provide 7 million seniors an estimated tax cut averaging $1,400.

Saver’s Credit. The earnings threshhold of the retirement saver’s credit (which gives up to 50 cents per dollar up to $2,000 invested each year in IRAs/401k plans, etc. back as a tax credit) would be raised from $52,000 (for couples) to $75,000, and the credit would be refundable.

Social Security. Mr. Obama opposes raising the retirement age and opposes any privatizing of Social Security. Those making more than $250,000 would see their contributions to Social Security rise (in the range of 2% to 4% more in total combined employer and employee).

Retirement plan withdrawals. The President-elect would suspend required withdrawals from retirement accounts, which kick in when participants attain 70 1/2. In addition, Mr. Obama proposes allowing those younger than 59 to withdraw up to 15% of their IRAs or 401(k) accounts, up to a maximum of $10,000, without having to pay the 10% penalty for withdrawing early, though income tax still would apply.

The 111th Congress is scheduled to convene on Jan. 3, 2009. Mr. Obama’s inauguration will be on Jan. 20, 2009.

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