Retirement reform bills are blooming on Capitol Hill this week. In addition to SECURE 2.0 passing in the House by an overwhelming 414-5 vote late Tuesday, yet another bill focused on 401ks was introduced in the Senate on Wednesday.
U.S. Senators Tom Carper (D-DE) and John Barrasso (R-WY) introduced bipartisanlegislation intended to expand access to retirement savings plans for more Americans with what they’ve dubbed “The Starter-K Act of 2022.”
To address the problem that only half of small businesses with fewer than 50 employees currently provide a retirement plan for their employees, The Starter-K Act of 2022 creates “starter retirement plans” that streamline regulations and lower costs for small businesses and start-ups, resulting in more access to 401k plans. Employees of participating small businesses would be automatically enrolled, which the senators say enables retirement savings up to $6,000 per year.
“Small businesses are the backbone of our economy, providing millions of jobs for Americans nationwide. But far too often, businesses cannot afford to provide their workers with retirement plans, leaving many Americans without a sound financial future,” Senator Carper said. “I’m proud to cosponsor this legislation that would make it simpler and more cost-effective for small businesses to provide workers with employer-sponsored retirement plans. I look forward to working with Senator Barrasso on this important issue to help more Americans save for retirement and achieve more secure financial futures.”
“Small businesses are the biggest employers in so many communities in Wyoming and around the country. They deserve the opportunity to provide their employees with better options to save more for retirement,” said Senator Barrasso. “Our bipartisan bill ensures that small businesses can access streamlined plans without complex regulations. This will help more hard-working Americans save money and achieve a more secure financial future.”
“The ‘Starter K’ provides both a simplified structure and real tax incentives for hundreds of thousands of small businesses to provide for the first time this option to their workforce. We enthusiastically support this legislation”
ARA CEO Brian Graff
“The nation’s retirement savings gap is almost exclusively found among small businesses, many of which cite administrative concerns and cost as primary reasons they don’t offer currently access to a retirement savings plan at work,” said Brian Graff, CEO of the American Retirement Association. “As they look to meet the challenges of the ‘Great Resignation,’ the ‘Starter K’ provides both a simplified structure and real tax incentives for hundreds of thousands of small businesses to provide for the first time this option to their workforce. We enthusiastically support this legislation, and the opportunity it presents for millions of hard-working Americans.”
The Starter-K Act of 2022 creates “starter” defined contribution plans (DC) under Sections 401k and 403b.
• These starter DC plans would streamline regulations by providing employers a safe harbor for the nondiscrimination and top-heavy testing requirements for defined contribution plans.
• Employers are not required to provide matching contributions, meaning lower costs for small businesses and start-ups.
• Eligible employers are those who do not currently offer a plan.
• Annual contributions would be limited to $6,000, indexed to inflation (with an additional catch-up contribution for those at least age 50).
• Eligible employees are automatically enrolled at the minimum default level of 3% of pay.
• Directs the Department of Labor (DOL) to provide simplified reporting for the plans.
What’s next
It remains to be seen whether the Starter K Act of 2022 will receive consideration in the Senate independently, or more likely alongside the larger, more comprehensive SECURE 2.0 retirement reform package as the Senate looks to reconcile the House’s ‘Securing a Strong Retirement Act of 2022’’ along with its own companion bill championed by Sens. Rob Portman (R-OH) and Ben Cardin (D-MD), the Retirement Security and Savings Act (RSSA) and also the Improving Access to Retirement Savings Act (S.1703) and others.
The Senate Health, Education, Labor and Pensions (HELP) Committee is working on its own SECURE 2.0 legislation package that in addition to many provisions in the House bill will likely propose to apply the IRC and ERISA spousal consent rules to DC plans.
The House bill includes proposals to increasing retirement savings through automatic enrollment, new incentives for small business to offer retirement plans, and expanded coverage.
SEE ALSO:
• 3 MAJOR Provisions in Tuesday’s Retirement Legislation Vote
• Senate Holds Hearing on Retirement and Emergency Savings
• 401k Auto Portability Featured in Senate HELP Committee Hearing
• IRI ‘Optimistic’ Meaningful Retirement Legislation Will Pass in 2022