President Obama proposals offer modest help to the middle-class

By Michelle Singletary
Washington Post Staff Writer
Thursday, January 28, 2010

In reaching out to the middle class before his State of the Union address on Wednesday, President Obama issued what look to me like some fairly modest proposals.

He's seeking a boost in the child-care tax credit, changes in a new student loan repayment program, funds to help families taking care of elderly relatives and an initiative to make employers sign up their workers for retirement plans.

"We are fighting every single day to put Americans back to work, create good jobs and strengthen our economy for the long term," Obama said Monday.

He went on to say that the initiatives would "focus on easing the burdens on middle-class families who are struggling in this economy, and providing the help they need to get ahead." Well, they would ease them a little bit, perhaps, but not much.

The proposals were born out of the Middle Class Task Force, which Obama created a year ago with Vice President Biden as its chair. The task force held meetings all over the country, and the proposals released this week are being billed as a preview of more recommendations to come. The administration said a full report will be released next month.

The one initiative that stood out for me could go a long way toward boosting retirement savings.

The administration wants employers that do not currently offer retirement plans to enroll their employees in direct-deposit IRAs.

The administration says 78 million working Americans -- about half the workforce -- lack employer-based retirement plans. In 2007, fewer than 60 percent of employed heads of families were eligible to participate in a job-related pension or retirement plan.

For the most part, workers now sign up for defined-contribution plans such as 401(k)s as a replacement for traditional pensions, known as defined-benefit plans. Still, even at companies that offer retirement plans, there are holdouts. About one-third of eligible workers do not participate in defined-contribution plans, according to the Labor Department.

Studies have found that having an automatic-enrollment plan in place -- one in which employees have to opt out of participation -- increases retirement savings, particularly among low- and middle-income workers.

To encourage workers to save, some employers already sign them up automatically. The theory is that once you enroll employees, most won't make the effort to stop the contributions.

I support automatic enrollment. Nobody is locked in, so this is an example of where inertia could help people in the long run. The nonpartisan Employee Benefit Research Institute just released a preliminary report that found employers using this option in their 401(k) plans have also generally increased the amount of money matched for employees investing in the plans.

Okay, so we know automatic enrollment works. To this end, the administration wants to streamline the process by which employers enroll their workers.

Let's see, wasn't that covered by the Pension Protection Act of 2006? Where's the reform in what Obama is proposing? Seems very modest to me.

And speaking of modest, the proposed tax credits are fine, but the administration's plan to help students saddled with large college loans is akin to handing a belt to a teenager wearing oversize pants drooping below his behind. He'll still be left hanging out.

Biden said the administration would be "strengthening" the income-based repayment program, a fairly new payment option for federal student loans. Payments are capped based on the borrower's income and family size. Under the current plan, debt is forgiven after 25 years of qualifying payments.

The administration's proposal would limit a borrower's payments to 10 percent of his or her income above a basic living allowance. It is also recommending that the debt be forgiven after 20 years.

Certainly this will help many students, but it doesn't address the larger issue of the high cost of college and the increasing amount of debt people are using to pay for it. The proposal doesn't deal with pricey private student loans. And I wouldn't want to be paying on student loans 20 years after finishing college.

Middle- and low-income families, as the president notes, have taken a real beating in the present economy. While it's tough to dismiss what he's offering entirely -- after all, every little bit helps, and as you know, I'm the queen of the penny-pinchers -- Obama's modest proposals really won't relieve much of the pain people are feeling.

For this, we need a bolder, more visionary agenda; an agenda fueled by the same urgency exercised to rescue corporate America.

Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.

© 2010 The Washington Post Company