It was “retirement savings proposal week” on Capitol Hill last week. President Obama — via his State of the Union speech and subsequent executive action — and members of Congress who introduced bills sparked a national debate about how best to encourage individuals to save for retirement. Here’s a roundup of all four proposals that emerged the week of Jan. 27:
In his State of the Union address on Jan. 28, President Obama unveiled a new retirement savings security product to be issued by the U.S. Treasury Department, called the “myRA.” This product is designed to help low and middle income earners (only individuals making less than $129,000 per year or $191,000 for couples are eligible to participate) to save for retirement through automatic payroll deduction at work. However, enrollment in the program is voluntary for both employers and employees. Individuals who wish to open a “myRA” account need to ask their employer to set up a payroll savings plan through the U.S. Treasury in order for the individual to save. The individual then can save as little as $25 as an initial investment and $5 every pay period into the account. The security will earn interest at the same rate as the Government Securities Investment Fund in the Thrift Savings Plan for federal employees. The contributions to the account will have the same tax treatment as Roth IRAs. Once the balance in the account reaches $15,000, or after 30 years, the savings balance will have to be rolled into a private retirement account.
USA Retirement Funds Act
Not to be outdone, Sen. Tom Harkin (D-IA) released his long-awaited retirement bill, the USA Retirement Funds Act (S. 1979), on Jan. 30. Harkin’s legislation requires employers with 10 or more employees to offer a retirement savings plan to their workforce, with the USA Retirement Fund as the default arrangement. In addition, if employers with existing retirement plan arrangements do not automatically enroll employees or provide a lifetime income distribution option, the bill forces employers to either change their plan to meet those design requirements or to add the USA Retirement Fund arrangement on top of what the employer is already doing. The USA Retirement Fund automatically enrolls workers at an initial default contribution rate of 3% of pay that auto-escalates up to 6% of pay. An individual in a USA Retirement Fund arrangement could defer up to $10,000 per year into the plan, and employers could — but would not be required to — contribute uniformly among employees up to $5,000 per year into the arrangement as well.
The Harkin bill contains much more than the USA Retirement Fund element, making reforms to various aspects of the existing DC and DB systems as well. Notably, ASPPA’s DB simplification proposals were included in the legislation. ASPPA’s suggestions for tightening up the reporting requirements for multiple employer DC plans are also in Harkin’s bill.
The chairman and ranking member of the Senate Special Committee on Aging — Sens. Bill Nelson (D-FL) and Susan Collins (R-ME), respectively — jumped into the retirement mix as well. Their bill, the Retirement Security Act (S. 1970), gets rid of the “one bad apple” rule for MEPs, provides an additional safe harbor for the “stretch match,” clarifies retirement plan regulations for employers with multiple payroll systems and allows individuals to claim the Saver’s Credit on the Form 1040EZ.
Pension Flexibility Act
Finally, the Cooperative and Small Employer Charity (CSEC) Pension Flexibility Act (S. 1302), which eases pension funding rules for certain entities that have multiple employer DB plans, passed the Senate early last week by unanimous consent. It is unclear whether the bill will be taken up in the House of Representatives.
Andrew Remo is ASPPA’s Congressional Affairs Manager.