More Help for Your Retirement Savings May Be Coming

Just when it seems we will never have congressional cooperation again, a new bi-partisan proposal has emerged with the laudable goal of encouraging retirement security.

Senate control will be determined by the outcome of two January runoffs in Georgia, and the Democratic majority in the House has narrowed following the election so there remain elements of uncertainty. Nevertheless, retirement savings legislation has a strong chance of overcoming congressional gridlock next year.

According to the National Institute on Retirement Security, almost 40 million households have no retirement savings at all. If one adds the number of people who don’t feel they have sufficient savings, the Employee Benefit Research Institute estimates that Americans have a retirement savings gap of $4.3 trillion.

Portman feels being able to save more for retirement remains a bipartisan area where there is potential to make some real progress. He serves on the Senate Finance Subcommittee on Social Security, Pensions and Family Policy. His policy proposal is designed to expand workplace savings plans and increase the amount of money people can put away for retirement.

The Portman bill in the Senate (co-authored with Democratic Senator Ben Cardin) and a companion bill in the House (co-authored by Democrat Richard Neal and Republican Kevin Brady) would build on the Secure Act, landmark legislation that was approved by Congress in 2019.

The Senate measure and the House bill, known as SECURE 2.0, provide familiar provisions and thus, momentum in each chamber for more retirement savings legislation.

The Portman-Cardin and Neal-Brady legislation will be reintroduced early next year.

The proposal would increase the tax credit for small businesses to establish new retirement plans; provide incentives for more generous auto-enrollment plans; boost catch-up contribution limits for people over age 60; increase requirement minimum distribution age for retirement plans to 75 and implement a tax credit for low-income savers.

If enacted, the retirement preparedness of the American worker would vastly improve. In particular, an increased start-up tax credit for small employers would remove a significant barrier to the creation of workplace retirement plans and, therefore, would improve this coverage.

The greatest concern among many seniors and near seniors is not having enough savings to live comfortably in retirement and becoming a burden to their families.

For younger workers, the Portman-Cardin bill allows employers to make a contribution to an employee’s retirement account that matches the employee’s student loan payment. The student debt and catch-up contribution provisions are important for helping young workers get started on retirement savings and allowing older workers to bolster their accounts.

Increasing the amount available for Americans to put aside and promoting catch-up contributions could play a significant role in closing the gap for savers, especially those workers nearing retirement.

Letting people save more of their hard-won earnings tax-free is always commendable, but fiscal conservatives are likely to have concerns about this proposal’s impact on federal deficits. Ideally such a bill would see some corresponding reduction in federal outlays, so that the earnings of future generations are not further burdened by increasing the government’s massive debt.

In addition, although auto-enrollment in savings plans may certainly benefit some, presuming to siphon a portion of a worker’s earnings into an account they may not desire is a government overreach.

Helping people strengthen their saving habits and benefit by watching their balance grow is a sure way to ensure Americans have the financial security to lead productive, independent lives into their retirement years.

Here is a brief summary of the bipartisan package, which would:

  • Expand automatic enrollment in 401(k), 403(b) and SIMPLE IRA plans for eligible workers, with an initial automatic enrollment amount between 3% and 10%
  • Simplify the Saver’s Credit for mid- and low-income taxpayers by creating a single 50% rate of your contribution, as opposed to three tiers, and increase the maximum credit amount from $1,000 to $1,500
  • Increase the age for required minimum distribution (RMD) from 72yrs to 75 yrs;
  • Index the catch-up limit on IRA contributions beginning in 2022;
  • For individuals aged 60 and above, index and raise the catch-up limits for retirement plans to $10,000;
  • Allow 403(b) plans to participate in multiple employer pension plans;
  • Allow employers to match 401(k), 403(b) and SIMPLE IRA contributions with respect to “qualified student loan payments.
  • Reduce the penalty for failing to take RMDs from 50% to 25%, and exempt plan participants from RMD if their retirement plan contains less than $100,000 on Dec. 31 of the year before they turn 75;
  • Allow a one-time IRA distribution to charities up to $130,000.