Why is spending so easy and saving so difficult for many American workers? Discretionary income, a consumer culture, ease and enjoyment are key influencers. Marketing and technology certainly make spending easy, yet technology has done the same for the saving process.
It was found that workers who earn between $30,000 and $50,000 annually are twelve times more likely to save at work than on their own. Bi-partisan legislation is once again pending in Congress to improve retirement access and security for Americans.
I was pleased once again to be selected to attend the NAPA DC Fly-in Forum July 26 and 27. The National Association of Plan Advisors (NAPA) is part of the American Retirement Association and is the only advocacy group exclusively focused on the issues that matter to retirement plan advisors.
This was my fourth year attending this exclusive gathering of leading retirement plan advisors. This year’s conference and Capitol Hill visits returned to in-person meetings in Washington D.C. after being held virtually the last two years. My Capitol Hill visit included meetings with staff from Senator Grassley’s office and Senator Ernst’s office, including some time with Senator Ernst, as well.
Legislation tied to retirement policy generally enjoys both bipartisan and bicameral support. Witness the House Ways and Means Committee voting unanimously in May 2021 to approve the ‘Securing a Strong Retirement Act of 2021’ (sometimes referred to as “SECURE Act 2.0,” a follow-up to the SECURE Act signed into law in December 2019). In March 2022, the House of Representatives passed the bill by a vote of 414-5. Other Senate bills are still working their way through the process.
Notable provisions of this legislation are highlighted below. The first item listed is a major provision that could positively influence the adoption of 401(k) plans by small businesses and has the potential to increase, by millions, the number of retirement plan participants across the nation.
- Starter K – Creates a low-cost Starter 401(k) plan design option for small businesses. It allows employees to save up to $6,000 per year (plus a $1,000 catch-up contribution) – same limits as an IRA – but does not involve the administrative burden or expense of a traditional 401(k) plan. This design option does not require any employer contribution or complicated top-heavy testing. The only requirement is that employees are automatically enrolled in the plan (opt-out rather than opt-in) at a minimum of 3% of pay, but no more than 15% of pay.
- Enhanced Retirement Plan Startup Tax Credits – Increases the current tax credit limit from 50% to either 75% or 100% (depending upon the bill).
- Savers Match – Increases the existing Saver’s Credit that encourages low income Americans to save for retirement.
American workers are significantly more likely to save for retirement when given access to a retirement plan at work. In Iowa, over 36,000 employers do not provide a retirement plan to employees. That means approximately 200,000 full-time employees do not have access to an employer provided retirement plan. Existing 401(k) plans, the Starter K and other policy enhancements under consideration are the closest thing we have to an Easy Button for retirement savings.