Proposed Legislation Aims to Help Boost US Retirement Savings

Bipartisan bill calls for increased contribution limits, expanded access for workers.

Two US senators have introduced a bill with a broad set of reforms intended to improve Americans’ retirement security that include allowing more money to be set aside for retirement, and helping small businesses offer retirement plans.

Sens. Ben Cardin, a Maryland Democrat, and Rob Portman, an Ohio Republican, introduced the Retirement Security & Savings Act, which includes more than 50 provisions to addresses four major focal points to improve retirement savings. In addition to allowing people to set aside more for retirement, and helping small businesses offer retirement plans, it also aims to expand access to retirement savings plans for low-income Americans without coverage, and provide more certainty and flexibility during Americans’ retirement years. 

“Ensuring that families and workers can retire with dignity and stability is an ongoing, and strongly bipartisan, effort,” said Cardin in a release. “There have been many recent efforts acknowledging this need, yet more work needs to be done to make sure families have the necessary tools to be successful in their retirement.”

The bill comes on the heels of a similar bill passed by the House Ways and Means Committee in April called the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which calls for the increase of the contribution cap to 15% from 10% for employees enrolled in safe harbor plans, and the repeal of the rule that prohibits contributing to a traditional IRA after age 70½.

To help those who have fallen behind in saving for retirement, the bill introduced by Sens. Cardin and Portman would provide a new incentive for employers to offer a more generous automatic enrollment plan, and receive a safe harbor from costly retirement plan rules. It would provide a tax credit for employers that offer the safe harbor plans starting at 6% of pay in addition to the existing safe harbor of 3%. It would also raise the “catch-up” contribution limits to $10,000 from $6,000 for individuals over age 60 with 401(k) plans.

To help employees whose retirement savings are burdened by student loan debt, the bill would allow employers to make a matching contribution to the employee’s retirement account in the amount of his or her student loan payment.

The proposed legislation would also increase the current tax credit for small businesses starting a new retirement plan to as much as $5,000 from $500.

Additionally, the bill proposes to simplify rules for small businesses, including allowing them to self-correct all inadvertent plan violations under the IRS’ Employee Plans Compliance Resolution System without paying IRS fees or needing formal submissions to the IRS. And it would establish 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.

Some of the other provisions of the bill include expanding the eligibility of defined contribution plans to include part-time workers that complete between 500 and 1,000 hours of service for two consecutive years; raising the age for required minimum distributions to 72 in 2023 and 75 by 2030, from 70.5 now; and an exception from required minimum distributions for individuals with $100,000 or less in aggregate retirement savings.

The senators cited a 2019 Government Accountability Office report that found that nearly half of all near retirees over age 55 have no retirement savings at all. They also cited a Bureau of Labor Statistics’ National Compensation Survey that shows that nearly one-third (32%) of private sector workers don’t have access to an employer-sponsored plan, and less than half (49%) of all individuals working for small businesses have access to an employer-sponsored plan.

They also said that 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.

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