Sweeping Reform On The Horizon?
In the U.S., there is both an overwhelming number of companies that do not offer workplace retirement-savings plans as well as a large percentage of employees who do not take enough advantage of employer retirement-savings plans. In fact, it’s estimated that nearly 40 million Americans do not have access to workplace retirement saving plans. AND, for those who are saving, two-thirds are not saving enough to fund their retirement.
Both scenarios pose major problems. Without enough money saved for retirement, older adults find themselves working much longer than intended or becoming a burden to their families and society.
It has been 13 years since the Pension Protection Act of 2006 was adopted. That was the last time Congress enacted any comprehensive retirement legislation. Since then, the retirement marketplace has implemented several retirement-related products as well as financial wellness tools and retirement spending strategies. However, innovations in the retirement arena have not kept up with the times.
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Fortunately, lawmakers seem to have finally gotten serious about retirement security and expanding American workers’ access to workplace retirement plans. The Department of Labor recently proposed regulations for associate retirement plans (ARP). These plans would allow businesses to band together under one administrative umbrella to offer retirement-savings plans to employees. In addition to ARPs, there are several politicians working to rectify this retirement savings issue. The good news is, both political parties believe in working to resolve this problem. The following is a look at more retirement plan legislation that is on the table:
Expanding Workplace Coverage
Under this new proposal, the plan is to enhance the incentives for and simplify the administration of retirement plans. This would include proposals in the bipartisan Retirement Enhancement and Savings Act (RESA). The proposed legislation also plans to:
- Increase incentives for small business owners to offer qualified retirement plans by significantly increasing the tax credit for offering a plan.
- Add a new credit that encourages plan designs with an auto-enroll feature (with the ability to opt out).
- Allow business owners enough time to decide whether or not to adopt a qualified retirement plan by extending the deadline until their tax return due date.
- Give increased flexibility to plan sponsors to choose an administratively streamlines 401(k) safe harbor plan with generous employer contributions for employees.
Many small business owners do not currently offer retirement plans because of the various challenges; this proposed legislation aims to encourage them and make their decision easier and beneficial.
Automatic IRA & Automatic Retirement Plan Bills
The intention of these bills is to close the national retirement plan coverage gap while imposing a minimal burden on business owners. The bill would require employers with more than 10 employees that don’t sponsor a workplace retirement plan to offer and automatically enroll employees into a payroll-deduction individual retirement account (an auto-IRA). This goal is to leverage existing private-sector solutions in the marketplace instead of resorting to a government-run program. Currently, five states have implemented auto-IRA programs, which are in various stages of rollout.
The Automatic Retirement Plan Act is also pending. This would require businesses with at least 10 employees to have a workplace retirement plan with automatic enrollment.
Either of these bills or a combination of the two, could bring the most sweeping reform to the retirement system since the Employee Retirement Income Security Act of 1974.
Retirement Parity for Student Loans & Retirement Security and Savings Acts
This legislative proposal strives to answer the troubling question, “How can I save for retirement while I am paying off student loan debt?” Under this plan, employees can receive employer matching contributions into their 401(k) plan account based on their student loan repayments, which would be treated as if the employee were contributing to their 401(k) plan. Employees would not miss out on any “free money” or employer-matching contributions. Student loan payments that are matched would be treated as elective deferrals for purposes of the nondiscrimination test.
Other topics that have been discussed to help the retirement-savings problem include reducing required minimum distributions from 401(k)s and IRS, reducing costs for small businesses to offer such accounts, making it less risky for employers to offer guaranteed income annuities and requiring plans to annually tell workers how long their nest egg is projected to last.
Hopefully, with many lawmakers pushing this retirement plan legislation, the U.S. will soon see an uptick in workplace retirement plans offered, an increase in participants and a rise in contributions.
By Angie Isakson, QKA (Dublin office)