Defined benefit pension plans through private employers have all but evaporated. Today’s workers rely on defined contribution retirement plans – 401(k), 403(b), Individual Retirement Accounts (IRA), and others that are worker-funded, tax-deferred savings accounts – as the predominant method to save for retirement.
Yet, despite recent new tax benefits and steps taken to reduce the burdens of administering a retirement plan, too many businesses lack an employee retirement plan, which hurts workers’ ability to save for their golden years.
Our nation has made significant strides to improve retirement security for millions of America’s workers and retirees. Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act in 2019 and followed up with the Secure 2.0 Act in 2022.
Both laws expand access to workplace retirement plans and facilitate the use of protected lifetime income products that can help ensure retirees will not outlive their savings.
But there is more to do, and Rep. Richard Neal (D-Mass.) has a bold plan to improve retirement security with a bill to require businesses with ten or more employees to offer a retirement plan.
The need for bold action can’t be overstated. A Government Accountability Office report found that “limited access to workplace retirement accounts continues to be an impediment to expanding the percentage of households with retirement savings.”
The situation worsens for Black and Latino workers who lag in retirement savings. Fifty-three percent of Black workers and 64 percent of Latino workers lack access to a retirement plan.
Nineteen states have recognized the problem and enacted laws to create state-run retirement plans. Ten of those states require employers who don’t offer a retirement plan to enroll their employees in the state entity.
Since state-run plans tend to be IRA-based, they are less robust than the 401(k) plans that many employers who offer a plan tend to use. State IRA-based plans have lower contribution limits than 401(k) plans and often do not allow employers to match a portion of worker savings, further limiting growth potential.
Yet, the number of states considering these plans is growing, and public opinion supports a requirement for workplace retirement plans. A Natixis survey found that 81 percent of workers favor a requirement that employers offer a retirement plan.
Rather than rely on a patchwork of state plans, Congress should act on behalf of all workers and retirees. It’s the next logical step after the progress started with the Secure Act and the Secure 2.0 Act.
The Neal legislation would substantially increase retirement plan access and vastly improve the prospects of a secure and dignified retirement for millions more workers and retirees. The bill also directs the Treasury Department to develop regulations to make workplace retirement plans available to individuals who are “gig” workers. These are individuals who provide services to an employer that do not constitute employment.
We know from experience and data that workers with access to an employer-provided retirement plan are more likely to save. And, when those plans automatically enroll employees – with an opportunity to opt-out – worker participation increases. More importantly, those workers tend to stay in the plan to invest and save over time. The Secure 2.0 Act already requires all new employer-provided retirement plans to auto-enroll workers.
The Neal bill contains another critical feature addressing workers’ and retirees’ fear of outliving retirement savings. The legislation requires employers to offer employees with at least a $200,000 vested retirement account balance the option to take a distribution of up to 50 percent of savings to purchase an annuity. This can provide a sustainable, protected lifetime income stream.
Our nation faces a retirement crisis, and further delay is not an option. As life expectancy and the number of years people spend in retirement continue to climb, we can’t wait and sacrifice the time workers need to build and grow retirement savings that will last 30 years or more.
We’ve built the foundation for affordable and effective workplace retirement savings plans for businesses large and small. These solutions have helped to increase retirement savings for millions of workers, but some – particularly those working for small businesses – are being left behind.
The momentum in states to require action is growing, and public opinion favors decisive action. We can extend needed retirement plan access to millions more workers to provide well-established and successful retirement plan solutions through their employers. This will take effort, but our industry is ready to work with Congress to do more. Let’s be bold.
Contact: Dan Zielinski
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