3433-vol. 6 issue 2-3.pmd - iarfc

Volume 6, Issue 2 & 3 59
Act also contains significant incentives to increase participation in other
types of retirement plans. For example, before 2007, employees had to take it
upon themselves to enroll in their company’s sponsored retirement plan.
Beginning with tax year 2007, the Act allows employers to automatically enroll
all of their employees in the company-sponsored defined contribution plans.
The PPA also enables the employer to choose a moderate investment option
on behalf of employees who do not make the choice of investments themselves.
This is contrast to the situation prior to the PPA when the plan
defaulted to a low-yielding money market option. Now, the employee needs to
affirmatively opt out of the employer’s retirement plan and/or to choose his/
her own investment option. In short, employees no longer have the excuse
that they don’t understand or have the time to learn about the options that
the employer has made available. If employees do nothing, they will be
enrolled in the plan and have an investment strategy chosen for them.
In addition, the PPA made the Retirement Saver’s Credit permanent.
This credit encourages individuals of modest income to make contributions to
401(k) plans as well as IRAs by allowing them to claim a double tax break: the
tax credit as well as the tax deferral for the elective deferrals to the 401(k) plan
or the deduction for the IRA contribution.
The Act also made permanent the Roth 401(k) as well as the increased
contribution levels to IRAs, 401(k)s, and other vehicles which were
set to expire at the end of 2010. These limits are shown in Table 1. None of this
is to say that the retirement income crisis is over but at least now there are
greater opportunities for individuals to take advantage of the vehicles
available for retirement savings. Furthermore, financial advisors have
increased opportunities to assist individuals and employers with the choice of
retirement planning options.
Planning Strategies