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As Congress wrangles over many proposals within the Build Back Better reconciliation bill, one section holds the promise of addressing the anxiety millions of American workers, retirees and their families feel about their retirement security.
To that point, Congress needs to focus on the retirement provisions included in the budget reconciliation bill that would be impactful for both employers and their employees.
One provision in the bill, passed by two House committees, would require businesses with five or more employees to offer a workplace retirement plan. Employers who already provide workplace retirement plans would not need to change their current offerings.
As important, another provision would require employers to offer employees with $200,000 or more in a retirement account a choice to invest up to 50% of their vested balance in a protected lifetime income product. Providing this option would allow the employee to create a monthly income stream that they cannot outlive, mimicking the traditional pensions that many employers used to offer.
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Congress is often criticized for adding requirements to businesses without addressing implementation or cost burdens. But this time, Congress thought ahead and passed programs in the Setting Every Community Up for Retirement Enhancement (Secure) Act of 2019 to help small businesses afford and offer workplace retirement plans.
The Secure Act created pooled employer plans (PEPs) that allow small businesses to band together to offer employees a retirement plan and included tax credits to help business owners get started. Congress also clarified liability concerns that had created challenges for employers to include protected lifetime income options in plans to address workers’ concerns about outliving retirement savings.
While defined contribution workplace plans like 401(k) plans have increased, 48% of private-sector workers at establishments with fewer than 100 employees still do not have access to a retirement plan. With small businesses so critical to our national economy, we cannot leave the employees who work at these companies without an effective way to save for retirement.
A recent survey by my organization, the Insured Retirement Institute, found that many people over age 40 have inadequate retirement savings and are not saving enough to catch up. The survey found that 51% have less than $50,000 saved for retirement, and 57% save less than 10% of their income.
The survey also revealed that two-thirds of respondents wish they had started saving earlier and regret that they had not saved more. And 87% believe it is important that their retirement income from savings is protected for life.
When employers offer a plan and automatically enroll employees, participation rates triple to 91% among new hires, compared with 28% under voluntary enrollment. Over time, 9 in 10 participants increase the amount they save, either automatically or on their own.
But if a business does not offer a retirement plan, many workers may fail to save for retirement. Taking an extra step to require businesses to offer a plan can only boost retirement savings further.
This is important because the longer individuals can save throughout their working years, the more they will likely be able to accumulate for their retirement years.
A study by the American Retirement Association shows that this legislation would increase retirement savings by $7 trillion and create more than 60 million new retirement accounts — 98% of which would be among workers earning less than $100,000. The magnitude of what this legislation could accomplish should spur our elected leaders to act now.
Balancing government regulations with addressing societal issues requires careful consideration.
Despite significant progress toward expanding retirement plan coverage for workers, more still needs to be done. Requiring those businesses that have not provided a retirement plan to now do so will increase small business employees’ opportunities to save for retirement and lessen fears about whether they can afford to retire.
This is a defining moment for America’s workers and retirees.
We can address our nation’s retirement crisis, build economic equity, strengthen financial security and provide the means for workers to create sustainable lifetime income to last throughout their retirement years.
Congress needs to use this unique opportunity to pass the retirement provisions the House has included in the reconciliation legislation.