Why Saving for Retirement Is Getting Harder, and What You Can Do About It

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For retirement savers, the challenges just keep coming.

The Department of Labor recently signaled its intent to delay the final stages of its new Fiduciary Rule, which requires that retirement advisers work in their clients' best interests instead of choosing investments that might, for instance, boost fees for the adviser. The Labor Department under President Obama estimated that the rule could save Americans $17 billion in unnecessary investment fees.

The other changes include the passage of a law that could make it tougher for states to set up retirement plans for employees of companies that don't offer them. And the Treasury Department is shutting down another Obama-era program aimed at giving lower-income workers without employer-based retirement plans a secure way to begin saving for retirement.

Despite these hurdles, there are still savings options that can help you keep your retirement plans on track. But the recent changes mean that it's important to take full advantage of these remaining strategies.

The Fiduciary Rule went into partial effect in June after more than six years of review during the Obama administration. The rule was to be fully implemented in January 2018. But the Labor Department under President Trump recently filed a draft proposal with the federal Office of Management and Budget to delay that date until July 2019.

The effective portions of the rule require that any financial adviser who makes investment recommendations to a client with an individual retirement account (IRA) must be a fiduciary. Advisers' compensation must be "reasonable." They also can't mislead about how or how much they're being paid, or about any aspect of their investment transactions. 

The delayed portion of the Fiduciary Rule would further require that retirement advisers who still want to charge commissions sign contracts with their IRA clients detailing what compensation they're getting for their recommendations. The contract would not let advisers off the fiduciary hook; clients could sue them for breach of that duty—that is, not acting in the client's best interests. 

In the past, IRA holders could sue their advisers for breach of fiduciary duty only if those advisers held themselves out as fiduciaries, as Certified Financial Planners, say, but not stockbrokers, do. 

Roadblocks to Building Nest Eggs

Here are the other changes potentially affecting retirement saving.

• Complicating the process for state-run retirement plans. California, Connecticut, Illinois, Oregon and several other states have been setting up their own professionally managed, 401(k)-type savings plans. They are meant to be used by employees of companies that don't offer retirement plans, mainly small businesses.

Employees fund the accounts themselves through payroll deductions, with little cost to taxpayers. To encourage enrollment, several states designed their plans to sidestep complex compliance rules outlined by a 1970s federal law known as the Employee Retirement Income Security Act, or ERISA. But Congress, supported by private investment companies, passed a law this spring saying the plans must adhere to the ERISA rules. 

"We feel there’s sufficient leeway in the original ERISA language to move forward," says Marc Lifsher, a spokesman for the California State Treasurer's Office, in explaining why his state and some others expect to launch their programs anyway.

But observers say the new law could thwart new states from setting up such plans.

• End of myRA retirement accounts. The Treasury Department recently announced it will close its myRA program, a two-year-old retirement savings plan designed for beginning savers. Workers without an employer-based retirement plan, who are typically low-income, could save as little as as $5 a week after tax, up to $15,000 over a lifetime, through payroll deposits. The account paid a low but guaranteed rate of interest. 

The Treasury Department says there wasn't enough public participation in myRA accounts to justify the program's $70 million administrative cost. Only 20,000 savers had accounts, the department notes. 

(The Treasury Department did not answer questions about the Trump administration's stance on retirement saving beyond commenting on the myRA decision.)

"The end of the myRA is a relatively small deal, but if you combine it with everything else going on in the retirement area, we’re walking backwards," says Alicia Munnell, director of the Center for Retirement Research at Boston College. “The myRA addressed a serious problem, that more than half of Americans don’t have retirement savings at work."  

Andrew Biggs, a resident scholar at the conservative-leaning American Enterprise Institute in Washington, D.C., agrees that more could to be done to help savers. "It’s not a disaster situation, but people are worried about it and want to have options," he says. "If you’re going to take away one option, you should have others available."

Then there's one more potential change: The end of tax-deferred 401(k) contributions.  

Experts in retirement savings say they believe Congress might consider this as part of tax reform, possibly reviving a 2014 proposal that would prohibit new, tax-deferred IRA contributions and require companies employing 100 people or less to offer only post-tax, Roth 401(k)s for retirement savings. It also would cap how much employees of larger companies could contribute, tax-deferred, to a traditional 401(k); contributions beyond that limit would have to go into a Roth 401(k).

In such a scenario, savers might miss getting a current tax deferral, notes Munnell. But her bigger concern is that the change would be so confusing that it would inhibit people from saving. "Confusion often stymies people from acting," she says.

How You Can Build Retirement Savings

These developments notwithstanding, some decent options are still available to jumpstart savings, even if you don’t have a retirement plan at work. Here are a few ways for small savers to begin:

• Start with an online bank account. Investment companies often require a minimum contribution of $1,000 to begin an IRA. Use an FDIC-insured savings account to build that sum. Online accounts generally don't pay much, but the top interest rate for small accounts is currently about 1.3 percent, according to Bankrate.

• Pay yourself first. Arrange for automatic, direct transfers into the savings account each payday. You’ll learn not to miss the money and your savings will begin to grow. Relatively small sums, contributed regularly, can add up over time. 

• Open an IRA. Once you’ve got at least $1,000, you can put your money into mutual funds at a lot of investment companies. At that point, it’s worth moving to an IRA. You can contribute up to $5,500 a year in either a traditional or Roth IRA, and up to $6,500 if you’re age 50 or over. Depending on your income, you can get a partial or full tax deduction for contributions to a traditional IRA. Those with low incomes, who won't get much of break from a tax deduction, can opt for a Roth IRA—you'll put in money after tax but benefit tax-free earnings in the future.

• Check out the saver's credit. Single workers under age 65 who make less than $10,350 don’t have to file a tax return. But you still should file, especially if you can put a bit into retirement savings. The federal government gives lower earners money back in the form of a “saver's credit” as an incentive for contributing to retirement accounts. Parents of teens and new grads can add money to their kids’ IRAs to help them earn the credit. Do-it-yourself tax software will account for the saver's credit automatically; if you use a tax preparer, be sure to ask about it. 

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