I recently returned from the annual NAPA DC Fly-in Forum*. This was my sixth year participating in this conference with ~200 retirement plan advisors from around the country. The first day was focused on policy and legislative topics. The next morning my visits to Capitol Hill included the offices of Senator Grassley, Senator Ernst, Congresswoman Hinson, and Congressman Nunn. Staying abreast of retirement policies and related legislative issues, and participating in the process, benefits the financial well-being of all of us.
Did you know this is the 50th anniversary of the Employee Retirement Income Security Act of 1974 (ERISA)? While we have much progress to celebrate, there are also threats to private sector voluntary savings retirement plans. These plans complement our mandatory retirement program, Social Security. Together, they frame our retirement system in the United States.
Social Security is the foundation upon which all income earners benefit, with benefit ratios highest at the lowest income levels. Employer sponsored retirement plans build upon that foundation by incentivizing American workers with tax-favored treatment and, in most cases, an employer match.
There are some that want to create an additional federal government program with individual accounts and federally funded matching contributions. Some also contend that 401(k) plans are primarily benefiting those in the highest tax brackets. That is false. Overy 60% of 401(k) participants earn less than $100,000 and nearly 90% earn less than $200,000.
Once again, several bipartisan members of Congress introduced a bill, Retirement Savings for Americans Act, that would create a new federal government retirement plan for workers that currently do not have access to a workplace-based retirement plan. Our elected representatives were asked to oppose this bill for the following reasons.
There is a 5% government contribution (up to income limits). This creates incentives for employers to terminate their 401(k) plan and utilize the government-subsidized program. This program would not be subject to many of the laws and regulations that apply to private sector plans, thus lacking robust consumer protections. It would directly compete with Social Security for a predictable funding source, ultimately putting Social Security at risk. Time is needed to be various provisions of SECURE 2.0 (signed into law in late 2022) to stimulate adoption of new retirement plans by small businesses. There are 15 states that already require most businesses to either offer a retirement plan for their employees or participate in their state-based auto-IRA program.
The Automatic IRA Act of 2024 is a bill that requires employers with 10 or more employees that do not sponsor a retirement plan to automatically enroll their employees in an automatic IRA or start a retirement plan such as a 401(k). It builds upon, and protects, the successful state-run auto-IRA programs that have been implemented (referenced above) to close the retirement plan coverage gap. Our elected representatives were asked to support this bill for the following reasons.
Moderate-income workers are 12 times more likely to save for retirement if they have access to a retirement savings plan at work than saving on their own. Payroll deduction is a very convenient and disciplined way to save. Its significance cannot be overstated There is no direct cost to employers with the auto-IRA. This approach builds upon existing public-private partnerships where the government incentivizes retirement plan implementation and individual savings. Furthermore, it maintains the three-legged stool concept for retirement security of Social Security, employer-based retirement savings, and personal savings.
Next year will be very interesting to say the least (and contentious) as Congress will be working on major tax legislation. Provisions in the 2017 Tax Cuts and Jobs Act are set to expire, or “sunset,” at the end of 2025. Tax favored treatment in retirement plans and contribution limits are commonly at risk when tax legislation is being debated. Hence, recent advocacy conversations also looked ahead to 2025.