The Senate Finance Committee unanimously approved (28-0) the Enhance Americans Retirement Now (EARN) Act today during a markup session convened on Capitol Hill by Committee Chair Ron Wyden (D-OR).
It includes more than 70 proposals aimed at helping more Americans save for retirement, which Sen. Wyden said in his opening remarks is the culmination of months of collaboration between just about every member of the committee, Democrat and Republican.
The Senate Finance Committee’s EARN Act is expected to be combined with the Senate HELP Committee’s RISE & SHINE Act, which advanced through committee last week. The combined so-called SECURE 2.0 legislation will then need to be reconciled with similar House-passed legislation before a final bill can be voted on by both chambers of Congress and sent to President Biden for signature. The House of Representatives passed its comprehensive retirement bill in March with an overwhelming bipartisan vote.
The Investment Company Institute (ICI) applauded the EARN Act’s unanimous passage in the Senate Finance Committee with a statement from ICI President and CEO Eric Pan:
“ICI welcomes the Senate Finance Committee’s unanimous passage of the EARN Act today. We commend Chairman Wyden and Ranking Member Crapo for their strong leadership to help Americans save for their retirement and long-term financial security. The bipartisan EARN Act makes needed reforms and improvements to our voluntary retirement system that will empower working families and set them up for success. We encourage the full Senate to consider the bill, with the HELP Committee legislation, and send a unified SECURE 2.0 package to the president soon.”
The EARN Act contains several provisions that are included in the Insured Retirement Institute’s 2022 Federal Retirement Security Blueprint. IRI also released a statement lauding the bill’s approval Wednesday.
“We have strong bipartisan momentum to address the anxiety and insecurity that many workers and retirees have about their ability to accumulate sufficient savings to provide them with sustainable income during their retirement years,” said Wayne Chopus, IRI President and CEO. “IRI looks forward to working with the House and Senate to finalize a comprehensive bill that will put individuals on a path toward a secure and dignified retirement. We will advocate to expand the reach and impact of the final legislation to ensure there are more opportunities to offer protected lifetime income through workplace retirement plans.”
Wyden outlines bill’s 4 major reforms
In his opening remarks on Wednesday, Sen. Wyden provided a brief summary of what he considers the four major reforms in the EARN Act.
Savers tax credit
“First, the bill includes a pair of important upgrades to the Saver’s Tax Credit. For the first time, the Savers Tax Credit will be deposited directly into a worker’s IRA or 401k account, rather than lumped into any tax refund,” Wyden said. “This will unlock even greater savings potential with added interest and earnings on that deposit. Also for the first time, the saver’s credit will be fully refundable, which means workers of modest incomes will get an additional boost to their savings they couldn’t get before.”
Taken together, Sen. Wyden said these changes make the saver’s credit a much more powerful tool to help working people and middle-class Americans prepare for retirement. Roughly twice as many workers will qualify—up to 77 million.
“For a typical Oregon worker who participates in my state’s OregonSaves program, the EARN Act will deliver a 50% boost to their savings by the time they reach retirement. These are changes I’ve sought for five years, and they are key to giving all Americans the chance to get ahead.”
Student loan provision
As for the second major reform, Sen. Wyden said the bill includes a new saving opportunity for people buried under student loans by way of a provision that would allow employers to treat workers’ student loan repayments the same as 401k contributions.
“Here’s the issue. Millions of Americans have loads of student loan debt they typically pay off every month. By the time they pay for food, rent, utilities, the car, and those student loan payments, many people don’t have anything left over to participate in their employer’s retirement plan,” Wyden said. “The EARN Act says they will no longer have to forego that opportunity to save. For the first time, people making student loan payments will qualify to participate in their employer’s retirement plan. While they’re paying down their loans, their employers will make contributions to begin building up their retirement accounts. It’s a fresh approach that rewards people with increased savings for making smart financial choices—another long-standing priority of mine.”
Portability
The third major reform Sen. Wyden summarized deals with auto portability.
“For the first-time, the EARN Act will direct the Treasury to come up with new standardized forms that retirement plans can use to make rollovers easier for workers. Rollovers are how workers bring their savings along when they change jobs. Today that process is often a massive headache. There’s loads of paperwork, forms haven’t been standardized, the process is slow and confusing. The EARN Act is going to help change that because portability ought to be a whole lot simpler,” Wyden said.
Long term care
“Number four, for the first-time, the EARN Act will allow all employers to allow workers to take distributions from their retirement accounts to pay for long-term care premiums,” Wyden said. “The distributions out of retirement accounts will still be taxable, but there will no longer be a 10% penalty. It will mean that more people are able to get high-quality long term care insurance coverage in case they need expensive at home or nursing home care.”
Wyden pushes for addition to bill
In concluding his remarks, Sen. Wyden talked about one of his “top priorities,” which is currently missing from the EARN Act.
“Here’s a stunning fact: Half of the top one percent of the top one percent—8,300 taxpayers out of nearly 150 million—have gamed the tax rules for years to build massive retirement accounts. These fortunate few now hold collectively more than $200 billion in their IRAs and 401k accounts. Those massive accounts were built with assets that exploded in value over time—a wealth-accumulation strategy that isn’t available to typical Americans,” Wyden said.
“There is no reason why American taxpayers should be on the hook for subsidizing these massive accounts. I’ve proposed ending this game-playing by requiring distributions when a taxpayer’s 401k and IRA account balances reach $10 million.”
Sen. Wyden acknowledged there was no agreement to include this proposal in the bill the committee considered today. “But I want members and all who are following this to know, I’m going to keep birddogging this issue. The final retirement bill that hits the president’s desk ought to crack down on this obvious abuse of the tax code.”
SEE ALSO:
• Senate Version of SECURE 2.0 Set to Move Forward
• Senate HELP Committee Advances RISE & SHINE Act
• 5 Reasons Why the New 401k Auto Portability Bill is So Important
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
