The congressional tax-writing committees are considering bipartisan legislation that would provide an unprecedented boost in retirement savings. The far-reaching proposals are being billed as the “SECURE 2.0 package”, an extension to the 2019 SECURE Act, which increased the age for required minimum distributions and made it easier for small employers to offer joint plans. The Senate Finance Committee held a hearing on its proposals in July, which include provisions that would expand access to retirement plans using tools like automatic enrollment in workplace plans and state-sponsored automatic IRA programs.
At the hearing, Brian H. Graff, Chief Executive Officer of the American Retirement Association, testified that enactment of these proposals could create 51 million new individuals saving for retirement and would add an additional $6.2 trillion in retirement savings over a 10-year period. Nearly all – 98% – of these new savers earn less than $100,000 per year.
Sponsors cite recent findings by the Department of Labor (DOL) and others that many workers are not covered by retirement plans. A DOL survey found that while 71% of civilian workers had access to retirement benefits, the participation rate for that same group was only 55%, as reported by Sen. Mike Crapo, R-Idaho. Crapo noted that he is concerned with making it easier and cheaper for the smallest businesses to offer retirement plans for their employees.
Senate Finance Democrats introduced the Encouraging Americans to Save Act, noting that National Institute on Retirement Security estimates that more than 100 million working-age Americans do not have coverage through a pension plan or own any retirement assets, whether in a 401(k) type plan or an IRA.
Earlier this year, House Ways and Means Committee members introduced a bipartisan bill sponsored by the Democratic Chairman and Ranking Republican, the ‘‘Securing a Strong Retirement Act of 2021’’, H.R. 2594. That bill would:
- Promote savings earlier for retirement by enrolling employees automatically in their company’s 401(k) plan when a new plan is created;
- Create a new financial incentive for small businesses to offer retirement plans;
- Direct the IRS to promote the Saver’s Credit to increase utilization;
- Expand retirement savings options for non-profit employees by allowing groups of non-profits to join together to offer retirement plans to their employees;
- Allow individuals to save for retirement longer by increasing the required minimum distribution age to 75;
- Offer individuals ages 62, 63 and 64 more flexibility to set aside savings as they approach retirement;
- Allow individuals to pay down a student loan instead of contributing to a 401(k) plan and still receive an employer match in their retirement plan;
- Make it easier for military spouses who change jobs frequently to save for retirement;
- Allow individuals more flexibility to make gifts to charity through their IRAs;
- Allow taxpayers to avoid harsh penalties for inadvertent errors managing an IRA that can lead to a loss of retirement savings;
- Protect retirees who unknowingly receive retirement plan overpayments; and
- Make it easier for employees to find lost retirement accounts by creating a national, online, database of lost accounts.
What it Means For Employers
While many provisions of the proposals would help businesses who want to expand their employees’ retirement options, some could place new burdens on employers by requiring that employers automatically enroll new employees. However, most proposals have an exemption for very small businesses, those with 10 or fewer employees. Another mandatory requirement could involve making employers that do not offer retirement plans allow an employee to contribute to IRAs through payroll deductions. Accounts could then be rolled over when an employee switches jobs.
With bipartisan support, some of these proposals could make it through Congress this year, although the chance of a stand-alone bill is slim. Most likely, any retirement 2.0 plan will be attached to other, must-pass legislation.
Putting the Brakes on Mega-IRAs
While Congress considers boosting retirement savings for middle-income workers, Democrats on the House Ways and Means Committee want to curb the use of mega-IRA accounts by high-income taxpayers. House Ways and Means Committee Chairman Richard E. Neal (D-MA) and Senate Finance Committee Chairman Ron Wyden (D-OR) released new data that show a threefold increase in IRA accounts with balances of $5 million or more. As of 2019, nearly 25,000 taxpayers had aggregate IRA account balances of $5 million or more, and 497 taxpayers have aggregate IRA account balances of $25 million or more. The average aggregate account balance for these 497 taxpayers was more than $150 million.
Democrats on the tax-writing committees are looking at strategies to curb the use of IRAs as “tax shelters” by restricting the type of assets that can be invested in an IRA, such as nonpublic shares of startup companies, and limiting the amount that can be invested in a Roth IRA.