It’s back again. While mention of the Retirement Savings for Americans Act was noticeably absent from the conversation at this week’s NAPA 401(k) Summit in Las Vegas, it was recently reintroduced in Congress by Representatives Lloyd Smucker (R-PA) and Terri Sewell (D-AL) and U.S. Senators John Hickenlooper (D-CO) and Thom Tillis (R-NC).
“Over half of working employees lack access to the tax-advantaged retirement benefits that many higher-income earners take advantage of to save.”
Rep. Lloyd Smucker (R-PA)
The proposed legislation, which supporters say would help low- and middle-income Americans build wealth and save for retirement, seeks to establish a new program that gives eligible workers access to portable, tax-advantaged retirement savings accounts. If passed, the RSAA would allow the federal government to match contributions for low- and middle-income workers, with the match beginning to phase out at median income.
“Too many hard-working Americans are not able to prepare financially for retirement. Over half of working employees lack access to the tax-advantaged retirement benefits that many higher-income earners take advantage of to save,” Smucker said. “Additionally, as the workforce continues to innovate and more Americans become categorized as ‘gig workers,’ the reliance on traditional employer-sponsored plans causes too many workers to slip through the cracks. Hard-working Americans deserve a modern pathway to find financial security in their retirement. I am proud to join in this bipartisan and bicameral effort to advance the Retirement Savings for Americans Act, to help millions of Americans save for their retirements. I will continue to advocate for policies which help hard workers live their American Dream, including a well-earned and financially stable retirement.”
Sewell added that every American should be able to retire with dignity after a lifetime of work.
“Democrats and Republicans alike recognize the urgent need for Congress to address the gaps in our retirement system and make it easier for low- and middle-income workers to save for retirement,” Sewell said.
“Roughly 50 million Americans lack access to an employer-sponsored retirement plan, which represents a significant roadblock to achieving financial security for their retirement,” said Tillis. “The Retirement Savings for Americans Act tackles this real problem by establishing a pathway for savings for Americans lacking retirement options.”
An April 30 press release touting the bill’s reintroduction cited a study by the National Council on Aging, which found that 80% of aging Americans are struggling financially or are at risk of financial insecurity, and therefore, not prepared to retire. In a new ranking of the world’s retirement systems, the U.S. scored a C+, mainly because the current system works well for white collar workers but fails gig workers and blue collar workers. If trends continue, inadequate retirement savings will cost state and federal governments a combined $1.3 trillion in increased spending by 2040, bill supporters claim.
A recent report from the RAND Corporation indicates that over 40 million Americans, or 26% of the nation’s workforce who lack access to retirement plans, would receive matching federal benefits under the RSAA. Additionally, the RAND study reports that the RSAA could pay for itself in approximately 30 years by reducing reliance on other federal programs.
Supporters say the RSAA enjoys broad support (view a full list of endorsements of the legislation here) but many in the workplace retirement plan industry—and most notably the American Retirement Association—do not support it due to concerns it would undermine the existing employer-sponsored retirement system with its government-subsidized matching contributions that could incentivize employers to terminate existing 401(k) plans and also poses risks to Social Security’s stability.
Opponents have also argued that provisions in SECURE 2.0 legislation, state-sponsored auto-IRAs, and savings innovation in the form of auto-enrollment and auto-escalation are closing the retirement plan coverage gap and need to be given time to work rather than launching a massive government retirement program at a time when Social Security solvency is in question.
While concerns about the RSAA made headlines at on the main stage of the 2023 NAPA 401(k) Summit a few months after it was first introduced in December 2022, this year’s Summit in Las Vegas made no mention of the bill. The RSAA was also reintroduced in October of 2023 prior to being brought back to Congress again in April.
AARP among bill supporters
Among the higher-profile backers of the bill are Charles Schwab, AARP and the Economic Innovation Group.
“The Retirement Savings for Americans Act would create a healthier retirement system, a more financially secure workforce, and a stronger economy for all Americans,” said John Lettieri, President and CEO, Economic Innovation Group. “By ensuring that all workers—regardless of their employer or income—have the opportunity and incentives to build long-term financial security, the RSAA would boost the wealth of the working class and significantly reduce the strain on the social safety net over time. EIG is proud to have worked closely with Senators Hickenlooper and Tillis and Representatives Smucker and Sewell on this important legislation, and we applaud them for their bipartisan leadership on behalf of American workers.”
Bill Sweeney, AARP Senior Vice President of Government Affairs, said in a statement that nearly 1 out of 4 Americans have no retirement savings, and more than half of all Americans report they are concerned they will not achieve financial security in retirement. “We know that Americans are much more likely to save when they have access to retirement savings options at work. Today nearly half of all private-sector employees do not have access to an employer-sponsored retirement savings program. The Retirement Savings for Americans Act would help more families across the country save for retirement,” Sweeney said.
“Creating this kind of program meets an obligation we all share to help every working American build financial security and well-being in retirement. I also know it will offset future support we surely would have to provide if we don’t help more people begin to build that security today,” said Charles R. Schwab, Founder and Chairman, Charles Schwab Corporation. “And in true American spirit, it isn’t a giveaway, but an incentive for working individuals to begin helping themselves and their families.” Read Mr. Schwab’s full statement.
Notable details
The Retirement Savings for Americans Act contains the following provisions:
- Eligibility and Auto Enrollment: Full- and part-time workers who lack access to an employer-sponsored retirement plan would be eligible for an account, and they would be automatically enrolled at 3% of their income. They could choose to increase or decrease their withholding, or opt out entirely at any time. Independent workers (including gig workers) would also be eligible.
- Federal Contribution: Low- and moderate-income workers would be eligible for a 1% automatic contribution (as long as they remain employed) and up to a 4% matching contribution via a refundable federal tax credit. This would begin to phase out at median income.
- Portability: Accounts would remain attached to workers throughout their lifetimes, and workers would be able to stop and start contributions at will.
- Private Assets: The accounts would be the property of the worker and the assets could be passed down to future generations to help them build wealth and financial security.
- Investment Options: Much like the current Thrift Savings Plan, participants would be given a menu of simple, low-fee investment options to choose from, including lifecycle funds tied to a worker’s estimated retirement date, or index funds made of stocks and bonds.
Full text of the bill is available HERE and supporters have created a one-page explainer of the bill HERE.
EDITOR’S NOTE: This article has been updated since original publication.
SEE ALSO:
• RSAA: Improved Plan Access, But Worse Overall Outcomes, Morningstar Retirement Finds
• TSP-Like ‘Retirement Savings for Americans Act’ Introduced with Eye on 2023
• Brian Graff at 2023 NAPA 401(k) Summit: Year’s Long Battle Beginning Over Future of America’s Retirement Plan System
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.