On September 9, the House Ways and Means Committee approved a article of the law “ Build back better ”, the $ 3.5 trillion reconciliation bill, which would require employers to set up a self-enrollment pension plan for employees.
“Our country is currently facing a retirement income crisis,” said President Richard Neal (D-MA) in his press release. “Almost a third of Americans have no retirement savings, and about half of working-age households are at risk of not being able to maintain their current standard of living after retirement.”
However, with congressional debate on the future of this bill, sections like this could be cut or reduced.
Although this article has not been officially passed by the House, if it becomes law, it will greatly affect the ability of the average person to save for retirement. According to Boston College Retirement Research Center, over the past 30 years, there have only been about 50% of employees enrolled in some form of employer-sponsored retirement plan, such as a 401 (k) plan.
The approved section would require all businesses that have five or more employees to automatically enroll them in a retirement plan, most likely in the form of an Individual Retirement Account (IRA). Within 90 days of the enactment of this legislation, the Secretary of the Treasury will create an automatic IRA advisory group. The Advisory Group will make recommendations to the Secretary and help monitor any form of non-compliance. If employers do not comply, they face a fine of $ 10 per day per employee.
Although the bill requires employers to offer automatic enrollment, employees can opt out for any reason, including if they prefer to use some other form of retirement savings.
While it was largely a party line vote on the committee, two Democrats, Reps Stephanie Murphy (D-FL) and Ron Kind (D-WI), joined Republicans in vote no on this provision. Murphy explained that she couldn’t assess the benefits of the bill without knowing the exact cost of the bill and without knowing the exact tax increases needed to pay it. Kind objected because he thinks small businesses should be encouraged to have automatic retirement plans, but they should not be mandatory. If passed by both the House and the Senate, the legislation would come into effect after December 31, 2021.
Several organizations and experts, however, support the bill. For example, the American Retirement Association (ARA) has offered its support for the retirement provisions contained in the Build Back Better Act.
The ARA noted in a press release that enacting the retirement subtitle of the Build Back Better Act would create 62 million new retirement savers and add an additional $ 7 trillion in retirement savings over a period of time. of 10 years. What’s more, almost all – 98% – of those 62 million new savers earn less than $ 100,000 a year, the ARA noted.
David Blanchett, head of retirement research at PGIM DC Solutions in Lexington, Ky., Also said the bill will begin to close the retirement savings coverage gap.
“If you have a voluntary enrollment program, usually it’s half or less than plan participants choose to be in the plan, but if it’s an automatic enrollment, it’s generally well north of 80%, ”Blanchett said. “If you come up with a plan and automatically sign people up, well, you’re going to see how that huge leap again.”
In addition, the Employee Benefits Research Institute has consistently shown in his research that a worker’s confidence in their ability to retire at a desired standard of living is highest among those who have employer-sponsored retirement.
The biggest concern at the committee meeting was that the exception only starts with five employees. This number seemed too small for many members of Congress. Previous retirement regulations provided that the small business exemption was for businesses with 50 or fewer employees.
According to Blanchett, this plan will help individuals more than it hurts businesses. Experts say the hardest part of investing for retirement is getting started. Ensuring that the majority of people start saving will help people retire exponentially.
“The reason a lot of people don’t save for retirement is because it’s not easy,” said Blanchett. “I think what these plans do is they just automate the decision to save for retirement. So I fully understand that this is going to create additional burdens on running a business, but being given retirement security today for people who don’t have plans… it has to happen because these people would be better off because of it. “
Because of the impact of the non-compliance tax, it is more economically efficient for businesses to use an automatic enrollment plan.
“It can be administratively cumbersome (but) there (are) things you can do to make it easier,” he said.
Another complaint against this section of the bill was that it violated work done in the SECURE Act 2.0 which had bipartisan support. The SECURE Act 2.0, which has nothing to do with the Build Back Better Act, would allow workers to save for retirement and pay off student loans simultaneously. Some members of Republican Congress argued during the hearing that this section of the Build Back Better Act would be unnecessary given that the SECURE Act 2.0 exists with bipartisan support which will be voted on shortly.
Some Democrats have argued that this section of the bill only relies on SECURE Act 1.0, so it wouldn’t be a problem.
“The President’s SECURE 1.0 Act, enacted at the last Congress, laid the groundwork for providing access to private pension plans,” Representative John Larson (D-Conn) said during committee hearings. “We are expanding this effort today, to make sure more Americans are ready for retirement by requiring employers who are not currently sponsoring retirement plans to automatically enroll employees in IRAs and pension plans.” type 401 (k). “
There are similarities between the two pieces of legislation, mainly because they both have to do with how citizens can save for retirement, however, one does not necessarily negate the other.
As the debate continues, keep an eye on the destination of this section of the bill.