- Congress’ budget reconciliation bill includes three provisions effective for employers and workers alike, including mandatory retirement savings plans for most.
- The Insured Retirement Institute has found that many people over the age of 40 have insufficient retirement savings and are not saving enough to catch up.
- A study by the American Retirement Association suggests the legislation would increase retirement savings by $7 trillion and create more than 60 million new retirement accounts.
As Congress tussles over several proposals within the Build Back Better Reconciliation bill, a clause promises to address concerns to millions of American workers, retirees and their families about their retirement security.
To that point, Congress needs to focus on retirement provisions included in the budget reconciliation bill that would be impactful to both employers and their employees.
A provision in a bill passed by two House committees would require businesses with five or more employees to offer a workplace retirement plan. Employers who already offer workplace retirement plans will not need to change their current offerings.
Just as important, another provision would require employers to provide employees with $200,000 or more in a retirement account with the option to invest up to 50% of their vested balance in a protected lifetime income product. Providing this option will allow the employee to create a monthly income stream that they cannot exceed, mimicking the traditional pension that many employers used to offer.
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Congress is often criticized for adding requirements to businesses without addressing implementation or cost burdens. But this time, Congress thought ahead and passed programs in every community setting for the Retirement Enhancement (Secure) Act of 2019 to help small businesses offer and offer workplace retirement plans.
The SECURE Act created Pooled Employer Plans (PEPs) that allow small businesses to band together to offer a retirement plan to employees and include tax credits to help business owners get started. Congress also clarified liability concerns, which had created challenges for employers to include protected lifetime income options in plans to address workers’ concerns about depleting retirement savings.
While there has been an increase in defined contribution workplace plans such as 401(k) plans, 48% of private sector workers in establishments with fewer than 100 employees still do not have access to a retirement plan. With small businesses so important to our national economy, we cannot leave employees working at these companies without an effective way to save for retirement.
A recent survey by my organization, the Insured Retirement Institute, found that many people over the age of 40 have insufficient retirement savings and are not saving enough to catch up. The survey found that 51% saved less than $50,000 for retirement, and 57% saved less than 10% of their income.
The survey also revealed that two-thirds of respondents wish they had started saving earlier and are sorry they had not saved more. And 87% believe it is important that their retirement income from savings is protected for a lifetime.
When employers offer a plan and automatically enroll employees, the participation rate triples to 91%, compared to 28% under voluntary enrollment. Over time, 9 out of 10 participants increase the amount they save, either automatically or automatically.
But if a business doesn’t offer a retirement plan, many workers may fail to save for retirement. Taking an extra step to require businesses to offer a plan can only boost retirement savings further.
This is important because the longer individuals can save throughout their working years, the more they will be able to accumulate for their retirement years.
A study by the American Retirement Association suggests the law would increase retirement savings by $7 trillion and create more than 60 million new retirement accounts — 98% of which would be among workers with incomes less than $100,000. What this law can achieve should inspire our elected leaders to act now.
Balancing government regulations with addressing social issues requires careful consideration.
Despite significant progress toward expanding retirement plan coverage for workers, more still needs to be done. By requiring businesses that have not yet provided a retirement plan, doing so will increase the opportunities for small business employees to save for retirement and reduce fears about whether they may retire.
This is a defining moment for America’s workers and retirees.
We can address our nation’s retirement crisis, building economic equity, bolstering financial security and providing workers with the means to build sustainable lifetime income during their retirement years.
Congress needs to use this unique opportunity to pass the retirement provisions that the House has incorporated into the conciliation law.