A recently introduced bipartisan bill would allow younger workers to start their retirement savings journey earlier.
The Helping Young Americans Save for Retirement Act, presented last week by Rep. Brittany Pettersen (D-CO) and co-sponsored by Rep. Tim Walberg (R-MI), would revise the Employee Retirement Income Security Act of 1974 (ERISA) to expand savings access for workers between 18 to 20 years old.
Currently, employers who offer workplace 401(k) plans are only required to make them available to employees who are 21 years old or over. Companies can open retirement plans to younger workers, but many choose not to do so due to high costs and “excessive red tape,” said Rep. Pettersen in a statement.
The bill would likely open doors for younger working populations wanting to get a head start on their retirement. Studies have shown that younger, eligible working groups like Gen Z are saving for retirement at an earlier age, as new tools, strategies, and a greater emphasis on advice incentivize individuals to save for retirement now.
Higher costs of living, inflation, and market volatility has also opened the conversation between retirement plan advisors and younger groups on financial planning, long-term wellness, and the significance of saving at an earlier age.
“I got my first job at an early age and worked through middle school, high school and college,” said Pettersen. “Like so many other Coloradans, planning for my future didn’t start until I was much older when I was finally offered the opportunity to save for my retirement. We have to make sure our financial regulations keep up with reality and give all employees an opportunity to build a stronger financial foundation from the start.”
Pettersen cited 2021 data from the Plan Sponsor Council of America (PSCA), which found that employees between the ages of 18 and 21 could be missing out from additional savings and three years of compound interest.
“Empowering young Americans to start saving early not only fosters financial independence but also strengthens retirement security,” added Rep. Walberg. “I want to thank Rep. Pettersen for her partnership in spearheading this bipartisan effort to build a more resilient and brighter financial future for young Americans.”
The new bill mirrors one by the same name, introduced by Sen. Bill Cassidy (R-LA), ranking member of the Senate HELP Committee, and Sen. Tim Kaine (D-VA) in November 2023. That bill, also called the Helping Young Americans Save for Retirement Act, would lower the participation age of ERISA-covered defined contribution (DC) plans from age 21 to 18 years old.
This legislation would also eliminate ERISA provisions that makes covering younger workers expensive, including one that would require businesses to undergo mandatory audits if they allow employees under the age of 21 to start contributing to their pension. It also exempts 18 to 20-year-old employees from testing related to retirement funds that would otherwise increase the cost of administering retirement plans for these employees, according to a release on the Act.
“Young people who are starting out in their careers should be able to access employer-sponsored retirement plans like everyone else,” stated Sen. Kaine at the time. “This bipartisan bill would help more Americans access critical retirement benefits and put them on a path to a better financial future.”