Cardin, Portman Introduce Sweeping Reforms to Strengthen Americans’ Retirement Security
Bipartisan Legislation Would Increase Savings in IRAs and Workplace Savings Plans, Expand Coverage & Simplify Retirement Plan Rules
WASHINGTON – U.S. Senators Ben Cardin (D-Md.) and Rob Portman (R-Ohio) today introduced the Retirement Security & Savings Act, a broad set of reforms designed to help Americans save more for retirement and increase access to 401(k)s and other retirement plans. The measure includes more than 50 provisions to increase savings in 401(k)s and IRAs, help improve coverage in the small employer market and among part-time workers, reduce barriers to lifetime income retirement options, and allow employees to keep retirement savings in an IRA or qualified plan until they need them for retirement expenses instead of being forced to deplete their savings after age 70 and a half.
A link to the bill text is here.
The legislation builds on Portman and Cardin’s previous success in enacting sweeping reforms to enhance the retirement system as members of the House of Representatives in 1996, 2001, and 2006. Of note, the 2001 Portman-Cardin measure more than doubled contribution limits to IRAs, allowed portability between different types of qualified retirement plans, and created the ability for older workers to make catch-up contributions to 401(k)s and IRAs. Since it became law, 401(k) and other defined contribution plan assets have increased by 179 percent and savings in IRAs, including rollovers from retirement plans, have more than tripled. Overall, U.S. retirement savings have increased from $11.3 trillion in 2001 to $28.3 trillion today.
“Ensuring that families and workers can retire with dignity is an ongoing, and strongly bipartisan, effort. While we’ve made important policy improvements over the years, Congress needs to work continually with participants, retirees, and other stakeholders to make sure that retirement security is achievable, especially as our economy changes,” said Senator Cardin. “I’m proud to once again work with Senator Portman to strengthen our system, including by improving plan access, promoting lifetime income solutions, and helping all Americans save more for their retirement.”
“Over the last two decades, we’ve made progress in helping Americans save more for their retirement, but we need to do more. It’s a positive development that U.S. retirement savings have increased from $11.3 trillion in 2001 to $28.3 trillion today,” said Senator Portman. “Unfortunately, our savings rate remains too low and there are far too many Americans without any retirement nest egg at all. After a lifetime of work, Americans deserve the opportunity to enjoy a financially-secure retirement. That’s why Senator Cardin and I are once again leading this bipartisan effort to help strengthen the retirement security of all Americans.”
NOTE: The senators will continue their efforts to improve this legislation, which establishes a foundation for a broader bipartisan, bicameral retirement policy debate next Congress. The Retirement Security & Savings Act is supported by the American Benefits Council, AARP, Fidelity, Nationwide, Empower Retirement, TIAA, the Committee for Annuity Insurers, Transamerica, LPL Financial, Edward Jones, State Street Corporation, Church Alliance, the U.S. Chamber of Commerce, the Insured Retirement Institute, and the National Association of Government Defined Contribution Plan Administrators (NAGDCA). In order to help Americans save more for their retirement, the bill includes the following reforms:
Increasing Retirement Savings in IRAs and Workplace Plans
- The bill establishes a new automatic enrollment safe harbor for employers to meet nondiscrimination requirements. Under current law, the automatic deferral may be just three percent of salary for the employee’s first year. The provision would set the minimum default level of contributions at six percent in the first year, and escalate it to 10 percent within five years.
- The measure makes the Saver’s Credit refundable and requires that the credit be contributed directly to a Roth account in a retirement plan or to a Roth IRA.
- The bill also allows taxpayers to claim the saver’s credit on their 1040-EZ, and expand the group eligible for a 20 percent credit instead of a 10 percent credit.
- The bill allows employers to make matching contributions to retirement accounts of employees paying off qualified student loan debts.
- The bill expands retirement plans to include part-time employees working between 500 and 1,000 hours per year. Under current law, employers generally may exclude part-time employees (employees who work fewer than 1,000 hours per year) when providing a defined contribution plan to their employees. The bill requires employers maintaining a 401(k) plan to have a dual eligibility requirement under which an employee must complete either a one year of service requirement (with the 1,000-hour rule) or two consecutive years of service where the employee completes at least 500 hours of service.
Improving Access to Workplace Plans in the Small Employer Market
- The bill substantially increases the tax credit under current law for small businesses that adopt a new qualified retirement plan. Under current law, the credit cannot exceed $500; under the provision, small businesses could claim a credit as large as $5,000.
- The measure allows small businesses to self-correct all inadvertent plan violations under the IRS’ Employee Plans Compliance Resolution System (“EPCRS”) without a submission to the IRS, unless otherwise specified in regulations.
- The bill creates a new three-year, $500 tax credit for employer-sponsored retirement programs that automatically re-enroll plan participants at least every three years.
- The bill provides targeted relief from “top-heavy” rules in order to encourage employers to allow employees to start saving before the law requires it.
Reducing Costs and Other Barriers to Lifetime Income Retirement Options
- The bill more easily facilitates the sale of Qualifying Longevity Annuity Contracts (QLACs), a type of deferred annuities that begin payment at the end of an individual’s life expectancy, and a very inexpensive way for retirees to hedge the risk of outliving their savings.
- The bill eliminates significant current-law penalties and restrictions on obtaining guaranteed income for life.
Relief from Onerous Minimum Distribution Rules for Individuals
- The bill provides an exception from the required minimum distribution rules for individuals with $100,000 or less in aggregate retirement savings.
- The measure increases the age at which individuals are required to begin drawing down their retirement from an IRA or qualified plan. Under current law, the beginning age is 70 and a half; the bill increases the age to 72 in 2023 and 75 in 2030.
- The bill reduces the excise tax for failing to take required minimum distributions, lowering it from 50 percent of the shortfall owed to at most 25 percent, and to 10 percent or zero in other cases.
- The measure requires the Treasury Department to update the mortality tables that qualified plans must use in calculating annual required minimum distributions.
- The current tables are almost 20 years old and force individuals to withdraw their assets too quickly.
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