Washington's Plans for Your Retirement

The economy gets top billing, but Congress may also try to revamp 401(k) and IRA plans.

As Barack Obama made clear shortly after he won the election, fixing the economy is his top priority. But as he takes office Tuesday, millions are hoping he can help them repair their broken nest eggs, too. Meanwhile, your local congressman has plans of his own.

In proposals steeped with good intentions — but also controversy — lawmakers are looking for ways to make it easier to save for the golden years. While it sounds straightforward enough, tinkering with retirement savings is a surprisingly touchy subject. “People like their retirement plans the way they are,” says Dianne Howland, vice president of legislative affairs at the American Benefits Council.

Of course, many workers already save and invest for retirement via a plan offered through their employers, like a 401(k), in part because the automatic payroll deduction is so convenient. The question is, what, if anything, should be done to help the 47 million people whose employers don’t sponsor a plan?

One solution: Create a program that makes it easier to fund Individual Retirement Accounts from work. Bipartisan legislation was introduced in the House and the Senate in 2007 that would have required employers to allow employees to automatically funnel a portion of their paychecks into IRAs. The bills died in committee, but experts expect the idea to be revived in the new Congress.

Another proposal would boost the retirement savings of middle-class investors by expanding the so-called Saver’s Tax Credit, a tax break for retirement-savings contributions. As of now the credit is available to taxpayers with less than $52,000 in adjusted gross income (for those who are married and filing jointly). Proposed changes — both by Barack Obama and by Sen. Max Baucus, chairman of the Senate Finance Committee — would extend the credit to families making up to $75,000, not only cutting their taxes, but potentially boosting their refund. It’s a popular proposal, but it would slice into tax revenue, which means Congress would have to cut spending or raise taxes elsewhere.

What really gets people fired up are ideas like forcing employers or workers to contribute to retirement plans. While those proposals aren’t likely to gain much traction in Washington anytime soon, critics worry that a government-mandated savings plan is just one step closer to a nationalized system. If it’s a mandatory program, the government will have to get involved, says David Wray, president of the 401(k)/Profit-Sharing Council, an industry trade association. “We’d rather see the private market address it.”