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Lawmaker Wants to Mandate Retirement Plans, Employer Contributions

A new legislative proposal wouldn’t just require employers to offer a retirement plan — it would mandate employer contributions too.

The proposal, unveiled by Rep. Joe Crowley (D-N.Y.), Vice Chair of the House Democratic Caucus, would direct employers with 10 or more employees to open individualized retirement accounts for every employee, if they do not already offer a retirement plan. These federally established “Secure, Accessible, Valuable, Efficient Universal Pension” accounts (labeled “SAVE UP” accounts) would have government oversight, private management and a limited number of low-fee index fund options.  

Once enrolled, employees will automatically begin contributing 3% of their pre-tax income, with employee contributions increasing gradually over time unless the employee opts out. Contributions will be pre-tax, growth of investments will be tax-free, and withdrawals during retirement will be taxed as ordinary income.

The proposal goes further than simply requiring the establishment of IRAs, however. Employers would be required to contribute to either these new SAVE UP accounts or their existing workplace retirement accounts a specific, inflation-adjusted amount per hour for every worker. That amount would be set at 50 cents an hour worked to start.  

The plan offsets some of that employer cost by providing a refundable tax credit to employers, which would be worth the value of their contributions into the accounts of up to 10 employees — equaling up to $10,400 a year for five years. These tax credits would be open to any small business with less than $5 million in annual gross receipts, and the tax credits will be refundable, meaning that any business, including small and newly created ones that may not yet be earning profits, could still receive the credit.

Participant Investments

The plan sets a target benefit amount and “ensures risks are spread among all participants.” The proposal says that in years with above-average returns, some stock market gains will be channeled into a collective investment pool, and conversely, in years with below-average losses, these excess funds will then be apportioned among accountholders to help protect against huge swings in the market. As a result, while payout levels would not be guaranteed, the plan claims to produce a more stable result than “other market-based retirement options.”

The plan also calls for:

  • Establishment of “USAccounts” that would be established for each child born, and to which the federal government would contribute $500 in seed money the first year and match a portion of family contributions in succeeding years, based on family income. 

  • Making President Obama’s myRA program permanent.

Crowley’s plan also calls on Congress to explore eliminating the cap on Social Security withholding and to resist changes to the Social Security cost of living adjustment, specifically the so-called “chained CPI.”