WASHINGTON (Reuters) - U.S. President Barack Obama announced new measures on Saturday to encourage Americans to save more money for retirement, a move the White House said would put the economy on a stronger footing in the future.
Obama, in his weekly radio and Internet address, said the government would enact rules making it easier for small businesses to let workers automatically enroll in Individual Retirement Accounts (IRAs) and 401(k) retirement plans.
Payments for unused vacation time and sick leave could be converted into retirement savings under the new measures and Americans would be able to have tax refunds directly deposited into their retirement accounts or used to buy savings bonds.
The measures do not require congressional approval and most will take effect immediately.
“We have to revive this economy and rebuild it stronger than before,” Obama said in the address. “And making sure that folks have the opportunity and incentive to save -- for a home or college, for retirement or a rainy day -- is essential to that effort.”
As the Obama administration focuses on lifting the U.S. economy out of its worst crisis since the Great Depression, the president has often warned that recovery must be coupled with steps to prevent another financial fall.
Americans’ widespread reliance on credit cards and failure to save are two things he has targeted as part of that effort.
“The fact is, even before this recession hit, the savings rate was essentially zero, while borrowing had risen and credit card debt had increased,” Obama said.
“We cannot continue on this course. And we certainly cannot go back to an economy based on inflated profits and maxed-out credit cards.”
Obama said a drop in housing prices and fall in financial markets had caused Americans to lose some $2 trillion in retirement savings over the last two years.
MAKE IT AUTOMATIC
John Boehner, the Republican leader in the House of Representatives, called on Obama to support a Republican initiative that he said would keep the government from hindering Americans’ ability to restore their savings.
“Republicans are pleased President Obama has joined us in calling for action to help Americans rebuild their lost savings,” the House minority leader said in a statement.
“Millions of Americans have watched with anxiety in the past year as the value of their 401(k)s, college savings plans and other vital savings accounts have plummeted, and government should not be an impediment as they work to restore what they’ve lost,” he said.
The House Republican bill would raise contribution and catch-up limits for retirement accounts, reduced Social Security earnings penalties, suspend capital gains taxes on newly acquired assets for two years and suspend taxes on dividend income through 2011, among other measures.
An administration official said the Net National Savings rate -- which groups personal, corporate and government savings -- was -2.8 percent in the second quarter of 2009.
The U.S. personal savings rate came in at 5 percent in the same time period after falling as low as 0.8 percent in April of last year.
“Right now the situation in national savings is unsustainable,” said the official, calling the negative net national savings rate a “major macroeconomic challenge.”
U.S. officials hope making saving mechanisms more automatic will spur Americans to put more money away. Automatic enrollment programs in 401(k) savings plans by big corporations have increased employee participation significantly.
“Working Americans should be able to retire with dignity and security, but nearly half of the nation’s workforce has little or nothing beyond Social Security benefits to get by on in old age,” Treasury Secretary Timothy Geithner said in a statement.
The initiatives announced on Saturday are meant to augment previous proposals that do require congressional approval, including a plan to automatically enroll workers in IRAs if they do not have workplace retirement plans.
Even as it urges Americans to save, the administration wants consumers to spend money to help spur economic growth. The legislative proposals on Individual Retirement Accounts would not go into effect for a few years -- until 2011 -- to account for that dual desire, the official said.
Editing by Vicki Allen
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