Many people have no idea of what they expect to achieve after retirement when asked about their retirement plans. The government’s policies about retirement do not cater for the well-being of retirees creating a lot of worry for the life after employment. The increasing number of employees demanding cover by government pension programs and the current decline in the retirement income levels contributes to the change of the American pension landscape (Heiland and Li, 2012). The United States of America developed labor laws during the time when the country’s economy was independent and self-contained. The main aim of U.S. labor policy was to get rid of different challenges affecting employees and improve their lifestyle in order to enjoy working in a suitable environment. Additionally, the labor policy aimed at protecting American workers by law and protecting certain human rights. According to Dugas (2013), despite the growing economy in U.S. more than 28 percent of American workers lack confidence with the current labor policy on retirement. The research conducted by the Employment Benefit Research Institute (EBRI) in 2013 revealed that most workers are not sure of saving money for retirement. The above information calls upon a recommendation of labor policy about retirement that would fulfill the demands of workers. The proposed policy will bring change to the Public Employees’ Retirement Fund (PERF) in the State of California.
Current government policies about retirement
American workers are entitled to a number of retirement plans, benefits and savings as explained in the discussion. A pension plan is a form of employee benefits plan maintained by the employer aimed at providing income to employees until the covered employment plan is over. The Employee Benefit Security Administration (EBSA) forms the second retirement plan for American workers. EBSA plan is managed by the Department of Labor and administers provision for employee's retirement security act. The plan covers private sector pension plans and provides information to consumers about pension plans (United Stated Department of Labor, 2014). The above retirement plans and benefits are controlled by the American labor policy.
People cannot predict about the happening of tomorrow that is why the government should put more efforts in developing effective policies that would brighten the future of workers when they retire. Life after retirement is very demanding because workers want to invest in big businesses in order to enjoy a happy lifestyle thereafter. The U.S. government has introduced changes in labor policies about retirement capable of affecting the retirement life in the future. The new policy changes are more insecure leaving workers with no alternative rather than adhering to them because the Parliament passed the laws. Additionally, the proposed policy changes have the potential of affecting income plan for a number of employees in both the public and private sectors. People who eventually felt financially prepared for retirement have turned out to worry about the future because the new rules have completely ruined their financial plans. President Obama proposed the following changes on retirement policy to be effected in 2015 fiscal year budget (Hopkins, 2014).
Firstly, the Obama’s proposal aims at harmonizing the minimum distribution rules. The policy proposal requires distribution from Roth IRAs after the employee reaches 70 and a half years. The current ROTH IRA policy offers unique benefits compared to other retirement planning vehicles. The proposed policy aims at ensuring employees acquires the minimum required distribution by the first day of April after attaining the retirement age. Each year the account balance of the employee will be divided by IRS Uniform Lifetime Table, and the amount distributed to the owner’s account. The above policy tempts people to withdraw more money than their normal requirement resulting into unplanned spending even before the retirement period. Additionally, the above retirement policy increased the amount of taxed social security benefits (Hopkins, 2014).
The required distribution from ROTH IRA in retirement does not count as taxable income, therefore, pushing the employee into a higher tax bracket. The amount of retirement assets reduces causing a significant problem especially when the individual retirement plan had a tax-free growth of ROTH IRA assets. Additionally, the required minimum distribution from the ROTH IRA reduces the amount of assets received from a tax-free growth causing a massive reduction in the amount of money available during the entire retirement period. Lack of knowledge and finance by many Americans causes most workers live a stressed retirement period. Most workers are unprepared about retirement and never bother researching about retirement plans capable of changing their retirement life. Changes in policies like the ROTH IRA distribution plan has significant negative effects to employees, but lack of knowledge on finances and investments give way for a challenging future (Hopkins, 2014).
Secondly, Obama suggested a policy change on the ‘cap’ of IRA. The policy proposes that employees will not be allowed to make any further contributions into the IRA once they attain the maximum amount of assets capable of funding a secure retirement. The policy affects wealthy Americans and big firms whose company assets perform beyond expectations. The policy sets $3.2 million as the maximum amount of assets that an individual could possess. The process has the capacity of limiting rollover opportunities from organizational sponsored retirement plans, interfere with real estate planning methods only affordable by IRAs, and cause the fall of retirement income to the wealthiest workers. On the other hand, the policy introduces serious limitations to people used to higher standards of living during their employment period. The cap results to the reduction of retirement savings for wealthier people, especially those saving in 401(k).
Finally, the Obama government proposes the amendment of the labor policy to reduce Social Security benefits. The proposal would cause tremendous effects to the Social Security if implemented, hence disturbing many retirement income plans for the Americans. Social Security offers approximately 40 percent of the elderly retirement income. The past years have seen a challenging moment for the Social Securities and the sector has the probability of failing to provide full benefits to registered employees if the current trend continues. The government looked for ways to make Social Security stronger by increasing taxes to fund benefits, extending the full retirement age, and decreasing benefits (The New York Times, May 3, 2014). The policy aims at eliminating issues related to some employees enjoying Social Security finds before attaining the expected age that leads to lack of funds for the genuine workers. The government aims at increasing the coverage in order to reach low-income workers, workers working in smaller firms, and employees with connections to formal labor force. The issue might be complex but would help reform the Social Security and make benefits available to all classes of employees.
On the other hand, reducing Social Security benefits would affect retirement planning for people depending on the employer to pay their social security funds. In the recent past, most employees have been calling for earlier retirement because the government used to guarantee full pension payment irrespective of the year of retirement. Workers used to take advantage of the situation and engage in investments using their retirement money (US Government Accounting Office, n.d). With the current policy, people relying on the Social Security program to cater for almost all their retirement income stands chance to lose a substantial amount of retirement income because of reduced social security funds. Initially, workers would start enjoying Social Security benefits at the age of 62 (Agresti and Cardone, 2014). The proposed policy requires a person to acquire the full age of retirement otherwise face a reduction of the retirement income.
The proposed change on government retirement policy
The State of California has been experiencing significant retirement crisis in the past decades. Study by Ghilarducci (2012) shows that a number of employees working in California retired without receiving any retirement income from the State. Additionally, research by Schwartz Center for Economic Policy Analysis (SCEPA) revealed that approximately 53 percent of Californian workers did not have access to employer-provided retirement plan. The issue poses more dangers to employees nearing their retirement age by causing destabilizing effects of mass retirement. The following proposal aims at improving the Public Employees’ Retirement Fund (PERF) provided by CalPERS for state, classified school employees and public agency. The above public retirement system requires changed in order to meet the needs of Californian public employees and provide a solution to California’s retirement crisis. The changes will be first implemented at the state level and eventually expand to the government and federal levels. The State of California is selected because it has poor retirement policies that affect the livelihood of employees in the area.
In democratic nations, all policies, rules, and regulations must favor the rights of all individuals irrespective of their social background, gender, culture, wealth status, color, and ethnicity. The current labor laws on retirement and the expected changes in retirement policy by President Obama seem not to follow the demands of the majority. In 2013, the U.S. Minister of Finance announced a proposal to make reforms of the retirement industry in order to give workers good retirement benefits capable of helping them and their families for years. Presently, employees take more responsibilities of their overall financing wellbeing as employers claim of high taxes charged by the Federal Government. The objective of this retirement policy proposal is to ensure workers never exhaust their salaries in order to pay for retirement benefits, and end up receiving less retirement income at the time of maturity. Both the employer and the employee should make an equal contribution to pension funds.
Many American employees turn 65 unprepared for retirement. Reports from Employee Benefit Research Institute show how Americans are poorly prepared for retirement because most of them never save enough money to cater for the entire retirement period. Additionally, lack of adequate information about retirement, finance, and investments contribute to the high number of workers staying a poor life after retirement. President Obama 2015 retirement policy amendments aim at reducing Social Security benefits for public employees. Most workers in America enjoy retirement income distribution plans from the Social Security because it contains minimum regulations. Wealthier and high ranking people in the government take advantage of the situation and ask for earlier retirements in order to receive their full pension. Eventually, these people corrupt their way back to the public service and continue earning salaries normally. Lack of responsibility by the people involved in managing Social Security Funds at the State level contributes to the high number of the retirement crisis experienced in California.
The first amendment policy focuses on getting the exact number of workers expected to benefit from PERF each year. The high level of corruption in the country leads to more ghost workers in the public service getting unnecessary benefits while the normal employees are left out. The government should conduct a survey on the expected number of workers in every region in order to flush out ghost workers. Employing proficient people to run the progam could happen through thorough scrutiny of each employee’s employment status, opening a database containing employees and employers personal information in order to eliminate unwanted beneficiaries. According to Moeller (2011), Social Security is broke, and the state is reluctant to introduce any reforms to rebuild it to its normal status. The Social Security management team assumed that the program would pay all promised benefits by the year 2035, but with the current trend people are likely to suffer more (Faler, 2012).
Secondly, the proposal should make Social Security benefits available to people working in all sectors of employment. Initially, only public service employees were entitled to social security. Private sector employees developed their pension programs without government involvement. The policy follows the recently passed law by the State of California that required all non-governmental employers with five or more employees to make retirement plans for their employees. Moreover, the law requires all employees entitled to retirement benefits to registering online with retirement vendors in order to prevent unwanted beneficiaries (Johnsen, 2013).
In the 2015 Obama proposal, Social Security funds will be reduced in order to ensure every retiring person enjoys pension benefits. The following move seems not very impressive because some people invest much on Social Security in order to receive more retirement income. Instead, the State of California should pass a bill demanding that all organizations register their employees for the Social Security fund and define the minimum amount of pension that one should receive depending on the income level. For example, effective from July 1, 2014 the minimum wage for any employee in California is $9 per hour (United States Department of Labor, 2014). Additionally, the government should reduce the amount of taxes charged to private organizations in order to allow them offer more pension to their workers.
Involvement of politics in all government operations introduces an aspect of irresponsiveness among government agencies offering services to the public. The U.S. government has politicized PERF program to the extent that the program is losing its financial strength. Politicians chose the people to head the program and end up utilizing public funds for unintended function. Employees pay in excess of what is usually demanded in order to acquire more retirement income upon reaching the retirement age. California Attorney General contributed to the low pension and retirement reforms after opposing the proposed pension reforms aimed at improving the livelihood of retired public servants from the State of California. The Attorney’s action was a total misuse of power (California Pension Reform, March 10, 2013). The proposed retirement policy gives chance for public service employees to participate in voting for proposed pension reforms, bills, and policies. Politics should fight hard to prevent loss of retirement funds to unwanted thieves instead of accelerating the issue.
The state should implement changes focusing on low earners because they are the most affected by the retirement crisis. For example, California educators pay higher percentages of their salaries to California State Teachers’ Retirement System (CalSTRS) fund. Paying for CalSTRS leaves no money to pay for Social Security and do not qualify for any retirement benefits (California Teachers Association, 2014). The proposal aims at ensuring employers balance all their employees’ expenses when it comes to deducting money for various expenses in order to ensure they get enough to pay for importance programs like retirement benefits programs.
The proposal also calls upon the state duties of trustees to act in accordance to the law and avoid conflicts in the areas of Employee’s funds. Appointments in all positions should be thoroughly interviewed and scrutinized to ensure only competent employees take available positions. Additionally, the board of trustees should determine the exact time when the applicant is entitled to full compensation. Beneficiaries of Social Security funds could request for compensation anytime that resulted into financial stability of the program.
The affected parties and the beneficiaries
The proposed change on Public Employees Retirement Fund through making Social Security funds available to all people has significant effects to different parties. The proposal aims at making employers pay more for the funds, but workers are the major beneficiaries. Most employers underpay their workers claiming that they pay for their pension, insurance, and other government requirements. According to the new policy, employers will be required to pay 75 percent to Public Employees’ Retirement Fund and Social Security while the employee pays the remaining 25 percent. Additionally, the policy will ensure no organization takes advantage of the situation and underpay employees so that at the end of it all the employee suffers. According to Makhubela (2013), the maximum deduction permitted for an employee should not exceed 27.5 percent of the total remuneration and taxable income. The process will force employers to determine the appropriate amount to deduct from individual employee and at the same time provide the required remuneration.
On the other hand, the proposed amendment on the Public Employees’ Retirement Fund is more likely to benefit employees as opposed to employers. The change in the retirement savings landscape will increase the number of California workers’ expected pension payments to 6.6 Billion U.S. Dollars (Johnsen, 2013). Workers get guarantee of total compensation upon retirement with the new changes that see employers extract more money to cater for the employees’ retirement income. Additionally, the U.S. government provides the salary scale for all employees depending on the job group, the industry, and the size of the company. Employers found guilty of underpaying employees pay heavy fines reducing chances of workers suffering from paying more than they can afford. On the other hand, the proposed policy promotes savings from multiple generations of employees with different retirement ages contributing to more benefits and higher returns.
Workers from all business sectors are entitled to retirement benefits irrespective of the nature of employment, the industry, or the income level. The United States being one of the most developed countries in the world should not experience retirement crisis like those found in California. The paper discusses Obama 2015 retirement reforms and uses the idea to propose retirement reforms for the State of California. The reforms aim at ensuring equity for all employees. Additionally, implementation of new changes will see more workers benefiting from retirement pension plans less than six months after the retirement date. The above policy also aims at benefiting the employee at the expense of the employer.
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