The federal government’s highly successful Thrift Savings Plan for government employees—often referred to as the world’s largest defined contribution plan—is serving as a model for how the government can help private citizens save for retirement under a new bill introduced in Congress on Dec. 8.
U.S. Senators John Hickenlooper (D-CO) and Thom Tillis (R-NC), and Representatives Terri Sewell (D-AL) and Lloyd Smucker (R-PA) introduced the “Retirement Savings for Americans Act,” a bipartisan, bicameral bill intended to improve retirement security and financial well-being for low- and middle-income American workers.
Back in May, the four lawmakers formed a Congressional working group focused on boosting retirement security for millions of low- and middle-income American workers, and the new bill is the byproduct of their efforts.
The legislation would establish what the bill calls the “American Worker Retirement Plan,” a new program that gives eligible workers access to portable, tax-advantaged retirement savings accounts. It would also offer federal matching contributions for low- and middle-income workers, with the match beginning to phase out at median income.
“Too many Americans are working their entire adult lives only to reach retirement and find they don’t have enough saved,” said Sen. Hickenlooper. “Helping people save is an easy, efficient way to cut income inequality while making sure all workers get the retirement they’ve earned.”
The bill makes good on a call back in June from the U.S. Conference of Mayors, which adopted a resolution calling on Congress to emulate the Thrift Savings Plan to strengthen retirement security for low- and middle-income workers who lack access to a retirement plan through their employer.
“Roughly 40 million Americans lack access to an employer-sponsored retirement plan, which represents a significant roadblock to achieving financial security for their retirement,” said Sen. Tillis. “The Retirement Savings for Americans Act tackles this real problem by establishing a pathway for savings for Americans lacking retirement options.”
Notably, the bill is not intended to be included in the SECURE 2.0 retirement reform package currently under consideration that may get passed before the end of the year. The Retirement Savings for Americans Act is expected to be reintroduced and advanced in the next Congress in 2023.
“By incorporating a range of proven features, this innovative legislation would greatly expand market access to high-quality retirement plans and target savings incentives to workers who need them most.”
EIG President and CEO John Lettieri
The legislation closely follows the recommendations of the Economic Innovation Group’s (EIG) Inclusive Wealth-Building Initiative, which launched last year with a white paper by economists Teresa Ghilarducci and Kevin Hassett. In it, the authors outline an idea to significantly expand retirement savings for millions of low- and moderate-income Americans through a new program modeled after the highly successful federal Thrift Savings Plan (TSP), which has helped millions of federal workers and members of the military save for retirement.
“Far too many Americans are unprepared for retirement. The Retirement Savings for Americans Act would tackle serious gaps in the U.S. retirement system that have hindered millions of workers from saving for a more certain and secure future,” said EIG President and CEO John Lettieri. “By incorporating a range of proven features, this innovative legislation would greatly expand market access to high-quality retirement plans and target savings incentives to workers who need them most. The result would be a healthier retirement system, a more secure workforce, and a stronger economy to the benefit of all Americans.”
Ghilarducci, a labor economist at the New School and leading expert on retirement security, echoed the sentiments that too many Americans are struggling to meet their savings goals and secure a comfortable standard of living in retirement.
“The Retirement Savings for Americans Act takes critical steps to address gaps in federal retirement policy and ensure that low- and moderate-income workers are equipped to build a nest egg for themselves and for future generations,” Ghilarducci said.
“This legislation represents a unique opportunity to fix major shortcomings in the U.S. retirement system and build bottom-up wealth in a manner that rewards work and strengthens faith in the basic fairness of our economic system,” added Hassett, former chairman of the Council of Economic Advisers and distinguished visiting fellow at the Hoover Institution.
Full text of the bill is available here.
Federal contribution included in provisions
The bill 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.
Attacking the lack of access
“I appreciate the opportunity to advance meaningful bipartisan legislation to assist hardworking Americans save for their retirement. Our legislation, the Retirement Savings for Americans Act, will create a pathway for millions of Americans to find financial security in their retirement,” said Rep. Lloyd Smucker. “I look forward to continuing to advance this legislation in the next Congress and building upon the successes of SECURE 2.0 to help Americans become financially secure in their retirements.”
In a Dec. 8 press release supporting the new bill, Washington, DC-based bipartisan public policy organization EIG notes a quarter of non-retired adults have no retirement savings, and half of households risk taking a cut to their standard of living in retirement. Most workers in the bottom 50% of income lack access to an employer-sponsored retirement account. Making matters worse, existing federal tax benefits to incentivize retirement savings disproportionately benefit higher-earning workers, leaving low- and middle-income working Americans struggling to build long-term wealth and ensure a comfortable retirement.
A 2022 EIG national survey found that a large, bipartisan majority of voters (81%) are concerned about retirement security, while less than half are confident that the next generation will be better off financially.
SEE ALSO:
• Mayors Want TSP-Like Program for Workers Lacking Access to Retirement Plans
• New Congressional Working Group Seeks to Expand Retirement Security
• ‘Billions of Dollars in New Savings’ If SECURE 2.0 Passes: ACLI
• SECURE 2.0 Could Improve Retirement Savings for 100 Million+ Americans: ARA