A pair of Senate Democrats, one of whom is a 2020 presidential candidate, introduced legislation on April 4 that would require businesses to pay at least 50 cents into an employee’s retirement savings plan for every hour worked.
Noting that 3 in 10 workers lack access to a workplace retirement plan and that 4 in 10 adults do not have enough liquid savings to pay a $400 emergency expense, Sens. Amy Klobuchar (D-MN) and Chris Coons (D-DE) introduced legislation that calls for a hybrid emergency savings and 401(k)-type government-run program. Klobuchar is seeking her party's nomination to run for president.
Under the “Saving for the Future Act,” which is similar to the UK’s National Employment Savings Trust (NEST), the first $2,500 in savings would go to a worker’s “UP-Savings” account to be used for non-routine expenses, while contributions above that level would go to a worker’s “UP-Retirement” account, according to a summary of the bill.
When a participant makes a withdrawal from the UP-Savings account, contributions will automatically revert back to the UP-Savings account until the balance reaches the $2,500 threshold. Participants would also be given the option to bypass the UP-Savings account and save for retirement first.
Workers would be automatically enrolled to contribute 4% of their own earnings, but could opt out or select a different contribution level. In addition, worker contributions would escalate automatically to as much as 10% of their earnings.
Employer Contributions
As for the employer minimum contribution, the 50-cent-per-hour-worked contribution would rise to 60 cents after two years and then rise with wage growth. Employers would receive a tax credit equivalent to 50% of their minimum contributions for their first 15 workers and 25% of their minimum contributions for the next 15 workers.
Businesses with fewer than 100 workers could choose to make contributions through payroll into UP-Accounts run by the federal government, which would be portable and worker-owned. Employers with fewer than 10 workers could opt out of employer contributions, but if they do, workers would still gain access to an UP-Account, with a direct, individual credit for their savings.
The summary further explains that existing retirement plans will be allowed to continue. The maximum annual employee contribution to an UP-Account would be set at half the level of allowable contributions to 401(k) plans.
Investment Options
The fiduciaries of UP-Accounts would be a federal board appointed by the president and subject to confirmation by the Senate, similar to the Thrift Savings Plan for federal workers. The board would be required to contract out the administration of UP-Accounts to a financial services company and ensure that participants are provided with a diversified menu of investment products.
While the bill has not been officially scored, the sponsors estimate that the tax credits would cost $200-$250 billion over 10 years. As such, they propose to offset the legislation with a 2 percentage point increase in the corporate tax rate, from 21% to 23%, and by restoring the top tax rate on ordinary income back to 39.6% from 37%.
Companion legislation was also introduced in the House of Representatives by Reps. Scott Peters (D-CA), Lucy McBath (D-GA) and Lisa Blunt Rochester (D-DE).
