Proposed Legislation Aims to Increase Retirement Plan Participation for All Americans
On Sept. 9, the House Ways and Means Committee approved retirement provisions in President Biden’s Build Back Better bill. If the legislation becomes law, it will dramatically change how Americans save for retirement.
Auto Enrollment: A Savings Game Changer
If enacted, the measure would reduce a retirement coverage gap that affects some 33% of private- sector workers, according to the U.S. Bureau of Labor Statistics. “Estimates show that enactment of the combination of the Automatic IRA Act and the Encouraging Americans to Save Act would create 51 million new individuals now saving for retirement and would add an additional $6.2 trillion in retirement savings over a 10-year period. Nearly all—98%—of these 51 million new savers earn less than $100,000 per year,”1 said Brian Graff, head of the American Retirement Association, in his remarks to the Committee.
Employer Plan Requirements
The proposed legislation would require employers that are at least two years old that currently don’t offer access to a retirement plan and employ five or more people to begin automatically enrolling their employees in IRAs or 401(k)-type plans, effective Jan. 1, 2023. The automatic contribution would start at 6% for qualified employees and auto- escalate up to 10% during the fifth plan year and thereafter. Employees would be free to opt out or change their savings rate. Companies that fail to comply would be fined $10 per employee per day for up to three months.
Tax Credit for Plan Start-up Costs
To help offset plan administration costs, the proposed legislation significantly boosts the existing tax credit for qualified plan start-up costs and adds a new credit for certain small employer automatic retirement arrangements. An employer with a deferral-only 401(k) would get a $1,000 credit for three years regardless of expenses and $500 for the fourth year.
State-Sponsored Auto IRAs Proposed
The other part of the legislation encourages employees, especially minorities who lack access to a retirement plan, to participate in a state-sponsored auto-IRA plan. For small and midsized employers (between 5 and 250 employees) without plans, 86% support the state- sponsored concept.2 According to an Employee Benefit Research Institute study, nearly half (47%) of workers without a retirement plan report having less than $1,000 in savings and investments.3
Consult With Your RPS Team
If you would like to discuss these proposed retirement provisions or review your plan design, the Retirement Plan Solutions team at Mariner Wealth Advisors is here to help and can offer recommendations and guidance on the options that might be available to you.
1 “ARA Graff Projects 51 Million New Retirement Savers”
2 “Graff: Auto-IRA an Industry Gamechanger”
3 “Retirement Confidence Survey 2021 Fact Sheet”
The tax laws discussed are proposed at the time and any final laws or regulations passed may vary significantly from the proposed. Tax laws and regulations are complex and subject to change, and we cannot guarantee that the information herein is accurate, complete, or timely. Any changes to the proposed may also affect any illustrations used in this article.
The views expressed are for commentary purposes only and do not take into account any individual personal, financial, legal or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. The opinions are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information.
Mariner Wealth Advisors (“MWA”), is an SEC registered investment adviser with its principal place of business in the State of Kansas. Registration of an investment adviser does not imply a certain level of skill or training. MWA is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which MWA maintains clients. MWA may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by MWA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MWA, including fees and services, please contact MWA or refer to the Investment Adviser Public Disclosure website. Please read the disclosure statement carefully before you invest or send money.