- A number of bills to reform retirement plans are alive in the U.S. Congress this year.
- Many of the measures could improve a retirement savings system in need of reform.
- One potential innovation would allow small firms to work together to establish retirement plans.
Investors may see meaningful changes to 401(k) plans and other retirement savings vehicles if Congress advances legislation introduced this summer.
Several bills have been under consideration in the Senate in recent weeks, and lawmakers hope to advance the discussion in the House.
A wide range of proposals
The Retirement Enhancement and Savings Act of 2018 (S. 2526, H.R. 5282) (RESA) was introduced by Finance Committee Chairman Orrin Hatch (R-UT) and ranking member Ron Wyden (D-OR), and a similar proposal was introduced in the House. This bill would make it easier for small firms to set up multiple employer – or pooled retirement savings plans.
- The bill increases the tax credit for small employer pension plan startup costs.
- It also provides a tax credit for small employers that establish a workplace plan with automatic enrollment.
- For individual retirement accounts (IRAs), the bill would repeal the maximum age for traditional IRA contributions, allowing individuals over age 70½ to fund an IRA.
More than one third of private sector workers do not have access to a workplace savings plan.
Another bipartisan group of senators introduced several bills that take different approaches to foster savings. The group said the proposals respond to the challenges facing many families today. More than one third of private sector workers (40 million people) do not have access to a workplace savings plan. (Department of Labor).
The following proposals were introduced and co-sponsored by Senator Tom Cotton (R-AR), Senator Todd Young (R-IN), Senator Heidi Heitkamp (D-ND), and Senator Cory Booker (D-NJ).
The Small Business Employees Retirement Enhancement Act (S.3219). This bill seeks to improve access for workers to participate in the retirement system and facilitates the process for small business owners to offer workplace plans. The proposal would lower the cost and remove barriers for small businesses interested in participating in a multiple-employer plan. The bill would also transfer some of the fiduciary responsibility for the plan from the employer to the pooled-plan provider, thereby reducing legal risk to the businesses.
The Retirement Security Flexibility Act (S.3221). Given the success of plan design to encourage saving behavior, this proposal would provide incentives for new and existing plans to use design features such as auto enrollment to build plan participation. For example, plan sponsors would receive incentives to use automatic enrollment and automatic escalation. Workers would continue to have the choice to opt out. The legislation would also provide some flexibility on regulations around employer contribution requirements.
The Strengthening Financial Security Through Short-Term Savings Act (S.3218). Multiple studies from the Federal Reserve have found that most households would have difficulty covering a $400 emergency expense without borrowing. This proposal would allow employers to automatically enroll workers into emergency savings accounts, in addition to retirement savings. Participants could build savings toward retirement as well as create a fund to be used for emergency expenses.
The Refund to Rainy Day Savings Act (S.3220). This bill is another method of encouraging saving by allowing individuals to pre-commit to saving their tax refund. An individual could defer payment on 20% of their tax refund, which would be deposited into an interest-bearing Treasury account and paid to the taxpayer within six months.
The big picture of retirement
Another bipartisan proposal would create a commission to study ways to improve the nation’s retirement system. The Commission on Retirement Security Act of 2018, introduced by Senators Todd Young (R-IN) and Cory Booker (D-NJ), would create a commission to study the nation’s retirement system and make recommendations to Congress.
The path of legislation is always difficult to predict, and it is too soon to say whether any of these proposals is likely to be approved by Congress this year. The number of bills focused on some key areas of reforms, such as access and investor behavior, show that there is at least heightened awareness among policy makers of the challenges facing retirement plan participants and plan sponsors.