Legislative Proposals Affecting Retirement Plans: A Washington, DC Recap
Overview
During a recent trip to Washington, DC, we met with legislators and their staff to discuss upcoming bills related to the retirement plan industry. We advocate for our clients and plan participants and want to report the relevant legislation.
The Current Retirement Plan Landscape
The retirement landscape in the United States is a pressing concern, with policymakers and industry leaders urgently seeking solutions to ensure financial security for Americans in their later years. Two pieces of proposed legislation, the Automatic IRA Act of 2024 (H.R. 7293) and the Retirement Savings for Americans Act (H.R. 6065/S. 3102) have sparked intense debate and raised crucial questions about the future of retirement savings in the country.
One of the main concerns is that Americans need to save more for retirement. Policymakers are especially concerned about the retirement savings of low—and middle-income Americans. Aside from this concern, there are concerns about the federal budget and social security.
The Automatic IRA Act of 2024 (H.R. 7293)
The Automatic IRA Act of 2024 (H.R. 7293) is designed to tackle the issue of retirement coverage for employees who do not have access to a workplace-based retirement plan. This legislation requires employers with over ten employees without a retirement plan to enroll them in an automatic IRA or a similar plan. Supporters of this bill believe that it has the potential to significantly increase retirement savings opportunities for workers with moderate incomes. The Act also includes provisions for a tax credit for small businesses and builds upon successful state-based auto-IRA programs. Advocates argue that the legislation strikes a balance by closing the retirement plan coverage gap while minimizing burdens on small to medium-sized businesses.
However, opponents of this legislation argue that it imposes a mandate on employers, which they may find burdensome.
The Retirement Savings for Americans Act (H.R. 6065/S. 3102)
The Retirement Savings for Americans Act (H.R. 6065/S. 3102) proposes the creation of a new federal government-managed fund for workers without access to a workplace-based retirement plan. However, this legislation has faced criticism for its potential impact on Social Security and existing 401(k) plans.
Opponents argue that the proposed federal retirement program could undermine Social Security and incentivize employers to close their 401(k) plans in favor of the new fund. Furthermore, concerns have been raised about the lack of consumer protections in the proposed fund and its perceived duplication of existing federal programs. Critics also argue that the legislation is based on the false premise that small employers and gig workers cannot afford retirement plans. Small businesses can access retirement plan options such as SEP IRAs, SIMPLE IRAs, and 401(k)s. Individuals also have access to Individual Retirement Accounts (IRAs). Many of the retirement plan options available do not require employers to contribute.
One significant criticism of the bill is that Social Security is already struggling and will run out of funds if there is no intervention in the next decade. People question why such a bill would be pushed while there is no push to fix an already seemingly failing government-initiated retirement policy.
Tax Deferrals
In addition to these legislative proposals, the conversation around retirement in the United States has also involved the accuracy of estimating tax expenditures related to 401(k) plans. Calls have been made to utilize the Present Value (P.V.) methodology to evaluate tax expenditures more accurately, highlighting the potential consequences of misleading estimates on policy decisions and the retirement security of millions of working Americans.
As lawmakers look for ways to collect tax revenue, they need to remember the difference between deferrals and deductions.
Roth: Participants pay taxes now and don't pay taxes later.
Pre-tax: Participants defer taxes until a later date.
Though we don't anticipate lawmakers cutting the tax benefits of retirement plans, it is critical to remind them of their importance to the average American. Some lawmakers have argued that 401(k) plans only benefit the ultra-wealthily. However, the data indicates that 60% of 401(k) participants earn $100,000 annually (Institute, 2024).
Conclusion
The debate surrounding these proposed legislative measures and the broader discussion on retirement savings reflect the complexities and challenges inherent in addressing the retirement needs of a diverse workforce. While the Automatic IRA Act of 2024 offers a potential solution to expand retirement coverage, concerns about the impact of the Retirement Savings for Americans Act raise essential questions about the best path forward. As these discussions continue, policymakers must carefully consider each proposal's potential benefits and drawbacks in shaping the future of retirement in the United States.
Works CitedInstitute, I. C. (2024). American Views on Defined Contribution Plan Saving, 2023. Investment Company Institute. Retrieved from https://www.ici.org/system/files/2024-02/24-ppr-dc-plan-saving.pdf