Congress is on the verge of approving significant and bipartisan retirement savings legislation. The House passed its version last week by a 417-3 margin. The Senate is expected to act on its version in the next few weeks. A reconciled measure should pass and go to the White House by year’s end.
The SECURE Act in the House and the RESA Act in the Senate aim to make employer-sponsored retirement savings plans more attractive. The congressional bills, which enjoy broad financial industry and small business support, are in many ways a response to state-sponsored retirement savings plans such as OregonSaves.
The SECURE Act provides incentives for small businesses to set up their own 401(k) plans or join other businesses in multiple-employer plans (MEPs). It also increases opportunities for workers to save through automatic enrollment and escalation, access to plans by long-term part-time workers and portability of accounts. The employee features roughly parallel the key selling points of state-sponsored retirement saving plans.
Additional provisions would raise the age to 72 when savers must take minimum required distributions from their 401(k) accounts, prohibit distribution plan loans by credit card and allow withdrawals of up to $10,000 to repay student loans and up to $5,000 to cover adoption-related expenses.
There was minor grumbling among Republicans during the House floor debate about a committee amendment that disallowed plan withdrawals to pay for K-12 school tuition, including at private and religious schools.
The SECURE Act ventures into the territory of offering in-plan investment vehicles such as annuities by creating a safe harbor for employer liability in the selection of an annuity provider. In-plan annuities also would be portable.
Critics of state-sponsored retirement savings plans have complained about competition with private-sector plan options. Congressional legislation will provide useful sales tools to financial advisers, especially in marketing to small businesses.
However, removing regulatory and liability obstacles may not change employer resistance to assuming the role of a retirement savings plan fiduciary. They may be content with a well-run government-savings plan that can provide easy access for employees and limited responsibilities for them.
The rise of government-sponsored retirement savings plans and bipartisan congressional action to make employer-sponsored plans more viable for small businesses are reflections of shared concern about the existing and projected number of Americans who will enter retirement with few financial resources.
Data indicates one quarter of adults have no retirement savings and one third of Baby Boomers have between nothing and $25,000 tucked away for retirement. Older adults are avoiding medical care because they lack money to pay for it.