Retirement reform legislation seems to be just about the only thing Republicans and Democrats can agree on these days, and it’s leading to a flood of new (or recycled) legislation being introduced on Capitol Hill recently.
On the heels of the Securing a Strong Retirement Act of 2021 introduced in early May and the Improving Access to Retirement Savings Act introduced earlier this week comes the May 20 reintroduction of the Retirement Security & Savings Act (S. 1770) from Senators Rob Portman (R-OH) and Ben Cardin (D-MD).
It is widely expected that these three bills will go on to form the basis of another major comprehensive retirement security bill, which will adopt the “SECURE 2.0” nickname in deference to 2019’s Setting Every Community Up for Retirement Enhancement (SECURE) Act, building on it by providing additional improvements and enhancements to help workers and retirees achieve their retirement goals.
The Retirement Security and Savings Act includes a broad set of reforms designed to strengthen Americans’ retirement security—and not coincidentally it should be noted that there are several overlapping components of the Portman-Cardin bill and the Securing a Strong Retirement Act in particular.
The Portman-Cardin bill addresses four major opportunities in the existing retirement system: (1) allowing people who have saved too little to set more aside for their retirement; (2) helping small businesses offer 401ks and other retirement plans; (3) expanding access to retirement savings plans, including for low-income Americans without coverage; and (4) providing more certainty and flexibility during Americans’ retirement years.
The measure includes more than 50 provisions to accomplish these objectives.
“Americans need to save more so they can retire with the dignity and stability the deserve. It’s an ongoing struggle, especially during the pandemic when millions of Americans were without work for months or longer and small businesses struggled to make ends meet,” Senator Cardin said. “We have an opportunity to make this process simpler and more beneficial to families and workers. There is strong bipartisan momentum to strengthen our retirement system and ensure Americans can achieve post-work financial stability.”
Cardin noted that over the past 20 years, he and the retiring Senator Portman “have never stopped working to find solutions that will help more Americans save more, gain access to retirement plans, and promote lifetime income solutions. I look forward to working together with the Senate Finance Committee members to consider this important legislation as soon as possible.”
“Since our last comprehensive retirement package became law in 2001, we’ve seen more Americans participate in 401ks and IRAs to save for their retirement, but our nation’s savings rate still remains too low and there are far too many Americans with no retirement account at all,” Senator Portman added. “This bipartisan legislation includes sweeping reforms to help Americans save more for retirement by allowing people who have saved too little to set more aside for their retirement, helping small businesses offer 401ks and other retirement plans, expanding access to retirement savings plans for low-income Americans without coverage, and providing more certainty and flexibility during Americans’ retirement years. I look forward to working with Senator Cardin, Chairman Wyden, and Ranking Member Crapo to move this legislation through the Finance Committee and urge all of my colleagues to support this bipartisan bill so we can strengthen the retirement security of all Americans.”
With recent committee passage of similar legislation in the House of Representatives Ways and Means Committee, led by Chairman Neal and Ranking Member Brady, there is a renewed energy in considering the next round of retirement security reforms in the Senate Finance Committee, led by Chairman Wyden and Ranking Member Crapo. In a statement announcing the reintroduction of their bill, Senators Cardin and Portman said they look forward to working with colleagues and stakeholders throughout this process to reach consensus on a final package.
The Retirement Security & Savings Act builds on the senators’ previous success in enacting reforms to enhance the retirement system as members of the House of Representatives in 1996, 2001, and 2006.
The bill is supported by the American Benefits Council, AARP, the Insured Retirement Institute, Fidelity, Nationwide, T. Rowe Price, Vanguard, Empower Retirement, TIAA, the Committee of Annuity Insurers, Transamerica, Employee-Owned S Corporations of America (ESCA), the American Council of Life Insurers, LPL Financial, Edward Jones, State Street Corporation, The Church Alliance, The Women’s Institute for Secure Retirement (WISER), International Association of Fire Fighters, the U.S. Chamber of Commerce, The ERISA Industry Committee, The National Association of Fixed Annuities (NAFA), ICMA-RC, SPARK Institute, and The National Association of Government Defined Contribution Plan Administrators (NAGDCA).
Even before the pandemic, a GAO report found that nearly half of all near retirees over age 55 have no retirement savings at all. The Bureau of Labor Statistics’ National Compensation Survey shows that while 67% of private-sector workers have access to an employer-sponsored plan that number drops to 49% for individuals working for the smallest businesses and 39% for part-time workers. Actual participation rates in workplace plans lag even further behind, especially for those individuals in the bottom quartile of wage earners. Among those lowest-paid workers, only about one in five earn retirement benefits, with just 22% of low-income workers participating in a retirement plan. The final challenge is the lack of adequate lifetime savings as Americans are living longer post-retirement. This legislation seeks to address all of these issues through what Portman and Cardin call “bipartisan, commonsense measures.”
What’s in the bill
Following are some highlights of the legislation, via a May 21 news release from Senator Cardin:
Allow people who have saved too little to set more aside for their retirement
- Establishes a new incentive for employers to offer a more generous automatic enrollment plan and receive a safe harbor from costly retirement plan rules. It provides a tax credit for employers that offer these safe harbor plans starting at 6% of pay in addition to the existing safe harbor at 3%. This gives employers the certainty to offer more generous retirement benefits to their employees.
- Increases the “catch-up” contribution limits from $6,000 to $10,000 for Baby Boomers (individuals over age 60) with 401k plans.
- Helps employees who are struggling to save for retirement and pay off student loan debt. It allows employers to make a matching contribution to the employee’s retirement account based on his or her student loan payment.
- Allows employers to make an additional contribution on behalf of employees in a small business SIMPLE retirement plan.
- Indexes to inflation the allowable catch-up contribution to Individual Retirement Accounts (IRAs).
Help small businesses offer 401ks and other retirement plans
- Increases the current law tax credit for the smallest businesses starting a new retirement plan to a larger percentage of their costs.
- Simplifies rules for small businesses, including allowing all businesses to self-correct all inadvertent plan violations under the IRS’ Employee Plans Compliance Resolution System (“EPCRS”) without paying IRS fees or needing formal submissions to the IRS.
- Simplifies “top-heavy” rules for small business plans to reduce the cost of enrolling new employees.
- Establishes a new three-year, $500 per-year tax credit for small businesses that automatically re-enroll plan participants into the employer plan at least once every three years.
Expand access to retirement savings plans, including for low-income Americans without coverage
- Expands the existing Saver’s Credit income thresholds to give more Americans access to increased credit amounts.
- Creates a new “government match” for low-income savers by making the Saver’s Credit directly refundable into a retirement account.
- Expands the eligibility of 401ks to include part-time workers that complete between 500 and 1,000 hours of service for two consecutive years.
- Make it easier for employees to find lost retirement accounts by creating a national, online database of lost accounts.
- Make it easier for military spouses who change jobs frequently to save for retirement.
Provide more certainty and flexibility during Americans’ retirement years
- Raising the age for required minimum distributions (RMDs) from age 72 to age 75 by 2032, allowing all individuals choosing to work later in life to keep saving for retirement.
- Creates an exception from RMDs for individuals with $100,000 or less in aggregate retirement savings, allowing them to choose to keep saving for retirement at any age.
- Reduces the current penalty for failing to take RMDs from 50% of the shortfall amount to 25% in most cases, and as low as 10%, if you self-correct.
- Encourages expanded use of Qualifying Longevity Annuity Contracts (QLACs), for retirement plans that provide annual payments to individuals who outlive their life expectancy. QLACs prevent older Americans from outlasting their savings.
- Protect retirees who received retirement plan overpayments through no fault of their own.
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