Retirement Security in the 116th Congress

Executive Summary

More than 75% of Americans believe there is currently a retirement crisis in this country[1]. Members of Congress in both political parties share the ambition to tackle the problem. AALU has been active in advocating to increase access to the retirement system alongside our industry partners and will continue to do so in the new Congress. We will advocate for reforms that remove burdens from employers in offering access to a retirement plan, make it easier for employees to participate in those plans and save more over a longer period of their lives, and encourage a wider range of lifetime income options to help Americans save in more diverse ways for retirement.

Simply put, Americans need more help saving for retirement. Not enough employers are offering plans; nearly half of Americans work for an employer that does not offer a retirement plan[2]. The gap between what Americans have saved and what they will need in retirement is currently estimated to be $3.83 trillion[3]. About one fifth of Americans have nothing saved for retirement, and one third have less than $5,000[4]. And other expenses, like paying off debt, are disrupting Americans’ efforts to save for retirement. There is currently estimated to be about $1.5 trillion in student loan debt in America. Millennials who have never taken out student loans have saved twice as much for retirement by age 30 than college graduates who carry a debt load[5].

Even with the high level of partisanship in Washington, retirement policy is one of the few areas where we could see bipartisan compromise lead to impactful legislation. There is already significant movement in the retirement space. The Chairmen of both congressional tax writing committees, House Ways and Means and Senate Finance, have introduced significant retirement bills this year.

House Ways and Means Chairman Richie Neal (D-MA) has a long history of working to address America’s retirement needs. Along with a group of bipartisan cosponsors, he introduced the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act / HR 1994). The measure was unanimously approved by the Ways & Means Committee and is expected to be considered in the full House this summer.

Senate Finance Committee Chairman Chuck Grassley (R-IA) and Sen. Ron Wyden (D-OR) reintroduced the Retirement Enhancement and Savings Act (RESA / S 972). Chairman Grassley recently said that passing RESA is one of his top priorities.

Chairman Neal made it clear that he would like to work on a second retirement package after completing action on the SECURE Act. In constructing a second retirement package, he plans to draw from his Automatic Retirement Plan Act, which would require most employers sponsor retirement plans for their employees. Chairman Grassley said earlier this year that a retirement bill by Rob Portman (R-OH) and Ben Cardin (D-MD), the Retirement Security and Savings Act, would be the next step after RESA.

Act 1: SECURE Act & RESA

The SECURE Act and RESA would both take a critical step towards addressing the growing challenges associated with a lack of adequate retirement savings. Overall, they look to make it easier for employers to offer access to plans, to incentivize employees to participate in workplace retirement plans, and to encourage lifetime income products to help Americans ensure that savings last through their entire lives.

Both bills were modeled on previous versions of RESA, and as such, share many provisions in common. Below is a chart highlighting both the relevant key provisions and the differences between the two bills. In addition to the key provisions highlighted, the bills:

  • Give plan sponsors more flexibility in making starting new plans and making changes to existing ones
  • Loosen plan reporting requirements
  • Increase the penalties for failing to file tax and retirement plan returns
Similarities SECURE Act RESA
·       Open Multiple Employer Plans

·       Increased tax credit for small employer plan startup costs

·       New autoenrollment plan tax credit

·       Annuity Selection Safe Harbor

·       Lifetime Income Disclosure

·       Lifetime income portability

·       Repeal max IRA contribution age

·       Required Minimum Distributions begin at 72

·       Raises the cap on matching contributions for autoenrollment safe harbor plans to 15% after the first year

·       Requires Stretch IRAs to distribute within 10 years

·       Opens plans to long-term, part-time employees

 

·       Removes the cap on matching contributions for autoenrollment safe harbor plans after the first year

·       Requires Stretch IRA balances exceeding $400,000 for a designated beneficiary to distribute within 5 years

 

ACT 2: What Else Is May Be Considered?

There is appetite and ambition from Republicans and Democrats to do more to bring solutions to bear on this crisis. Thought leaders in this policy space like Chairman Neal, as well as Senators Portman and Cardin have laid a lot of ground work already.

Chairman Neal plans on a second retirement package before the end of the year. He indicated the second attempt would focus on closing the coverage gap, simplifying the retirement system, and helping preserve income in retirement. The centerpiece of that package will be his Automatic Retirement Plan Act. The Chairman is already in discussion with Ranking Member Brady and others on the Ways & Means Committee about what else should be included in that package.

Neal’s Automatic Retirement Plan Act (H.R. 4523 in the 115th Congress)

AALU recently announced our support for the measure. The bill would:

  • Require most employers to maintain automatic enrollment retirement plans and would impose a tax on those employers who fail to do so

Portman/Cardin’s Retirement Security and Savings Act (S. 3781 in the 115th Congress)

Senators Portman (R-OH) and Cardin (D-MD) have been working on their package for a couple of years and are expected to introduce the latest version this summer. Highlights from last version of the bill include:

  • Increasing RMD age to:
    • 71 in 2020
    • 72 in 2024
    • 73 in 2030
    • Increase with life expectancy post-2030
  • Exempting from RMDs those with under $100,000 in total retirement savings
  • Reducing the penalty for failing to take a RMD from 50% to 25%
  • Allowing for employer matching contributions for student loan payments
  • Allowing certain IRA distributions to charity to be excluded from income up to $100,000
  • Allowing higher catch-up contributions

Prospects in the 116th Congress

There is a narrow window of opportunity between the rank partisanship that began the year and the full consumption of the legislative process by the 2020 Presidential campaign. The combined leadership of Chairman Neal and Chairman Grassley on the SECURE Act and RESA are the necessary combination to shepherd success through that window.

While the bills could more along their own track all the way to the President’s desk, recent history suggests it is more likely that the final product is added to larger package. The 2019 list of must pass legislation includes the annual appropriations bills, the debt limit, and a collection of laws that will expire with the end of the fiscal year (9/30) or the calendar year. In addition, there is bipartisan interest in addressing the expired tax extenders package and in a deal to avoid the sequester spending cuts. These could all roll into one large package or proceed in smaller constellations of issues later this year.

It is exceedingly difficult to predict the outcome for legislation that we have not yet seen. We will therefore refrain from suggesting an outcome for the second retirement package. However, the bipartisan desire work on solutions in this area combined with the leadership of some very able legislators warrant our attention and participation. AALU will continue to work as an advocate to addressing the retirement savings gap.

Appendix 

Bill # Sponsors/Co-sponsors Key Provisions Status
SECURE Act HR 1994 Neal, Brady, Kind, Kelly Open MEPs, enhanced startup credit, new autoenroll credit, repeal max IRA age limit, increase RMD age, LIDA, annuity safe harbor, 15% safe harbor cap, annuity selection safe harbor, lifetime income portability Reported favorably to the House out of Ways and Means
Senate RESA S 972 Grassley, Wyden Open MEPs, enhanced startup credit, new autoenroll credit, repeal max IRA age limit, LIDA, remove autoenroll % cap, annuity selection safe harbor, lifetime income portability Referred to Senate Finance Committee

Notes

[1] National Institute on Retirement Security, Retirement Insecurity 2019: Americans’ Views of the Retirement Crisis, https://www.nirsonline.org/wp-content/uploads/2019/02/FINAL-LONG-Retirement-Insecurity-2019.pdf

[2] Bureau of Labor Statistics, https://www.bls.gov/opub/ted/2018/51-percent-of-private-industry-workers-had-access-to-only-defined-contribution-retirement-plans-march-2018.htm

[3] EBRI, Retirement Savings Shortfalls: Evidence From EBRI’s 2019 Retirement Security Projection Model®, https://www.ebri.org/content/summary/retirement-savings-shortfalls-evidence-from-ebri-s-2019-retirement-security-projection-model

[4] Northwestern Mutual Study, https://news.northwesternmutual.com/2018-05-08-1-in-3-americans-have-less-than-5-000-in-retirement-savings

[5] Center for Retirement Research at Boston College, College Debt Can Limit 401(k) Saving, https://squaredawayblog.bc.edu/squared-away/college-debt-can-limit-401k-saving/