New bipartisan retirement savings bill introduced (while awaiting SECURE 2.0)

As the financial industry waits to see if Congress will act on the long-anticipated SECURE Act 2.0 before adjourning, a bipartisan group of legislators on December 8 introduced a new retirement savings bill.

The Retirement Savings for Americans Act would establish a new program that gives eligible workers access to portable, tax-advantaged retirement savings accounts. It also would offer federal matching contributions for low- and middle-income workers, with the match beginning to phase out at median income. The bill contains these provisions:

• Eligibility and auto-enrollment:Full- and part-time workers who lack access to an employer-sponsored retirement plan would be eligible for an account, and they would be automatically enrolled at 3% of their income. Participants could choose to increase or decrease their withholding or opt out entirely at any time. Independent workers (including gig workers) also would be eligible.
• Federal contribution:Low- and moderate-income workers would be eligible for a 1% automatic contribution (as long as they remain employed) and up to a 4% matching contribution via a refundable federal tax credit. This would begin to phase out at median income.
• Portability: Accounts would remain attached to workers throughout their lifetimes, and workers would be able to stop and start contributions at will.
• Private Assets: The accounts would be the property of the worker, and the assets could be passed down to future generations to help them build wealth and financial security.
• Investment options:Participants would be given a menu of simple, low-fee investment options to choose from, including lifecycle funds tied to a worker’s estimated retirement date or index funds made up of stocks and bonds.

Related: Putting 401(k)s on autopilot: Take plan design to the next level in 2023

The bill was introduced in the Senate by Sen. John Hickenlooper, D-Colo., and Sen. Thom Tillis, R-N.C., and in the House by Rep. Terri Sewell, D-Ala., and Rep. Lloyd Smudker, R-Pa. Last May, the four lawmakers formed a congressional working group focused on boosting retirement security for millions of low- and middle-income American workers, and the new bill is the byproduct of their efforts.

“Too many Americans are working their entire adult lives only to reach retirement and find they don’t have enough saved,” Hickenlooper said. “Helping people save is an easy, efficient way to cut income inequality while making sure all workers get the retirement they’ve earned.”

The legislation closely follows the recommendations of the Economic Innovation Group’s Inclusive Wealth-Building Initiative. Economists Teresa Ghilarducci and Kevin Hassett wrote a white paper outlining an idea to significantly expand retirement savings for millions of low- and moderate-income Americans through a new program modeled after the highly successful federal Thrift Savings Plan, which has helped millions of federal workers and members of the military save for retirement.

“Far too many Americans are unprepared for retirement,” said John Lettieri, president and CEO of the group. “The Retirement Savings for Americans Act would tackle serious gaps in the U.S. retirement system that have hindered millions of workers from saving for a more certain and secure future. By incorporating a range of proven features, this innovative legislation would greatly expand market access to high-quality retirement plans and target savings incentives to workers who need them most. The result would be a healthier retirement system, a more secure workforce and a stronger economy, to the benefit of all Americans.”

Ghilarducci, a labor economist at the New School and leading expert on retirement security, echoed the sentiments that too many Americans are struggling to meet their savings goals and secure a comfortable standard of living in retirement.

Brian Graff, CEO of the American Retirement Association, is reserving judgment. “We have already expressed serious reservations about the proposal with the sponsors and will continue to engage them when the new Congress convenes next year,” he said.

Tillis, however, touted the potential benefits for millions of workers.

“Roughly 40 million Americans lack access to an employer-sponsored retirement plan, which represents a significant roadblock to achieving financial security for their retirement,” he said. “The Retirement Savings for Americans Act tackles this real problem by establishing a pathway for savings for Americans lacking retirement options.”