WASHINGTON DC – Saving for retirement – and understanding your benefits – could soon become much easier.
Seniors could contribute more to their retirement savings. Part-time workers might find it easier to set up retirement accounts. Small businesses could get help providing retirement accounts for employees.
Congress is moving in a deliberate, bipartisan fashion to craft legislation that would do all of this and more.
The changes, which lawmakers aim to take effect next year, “would have a series of positive impacts for workers across the country, some of which could be substantial,” said Katie Selenski, executive director of CalSavers Retirement Savings Board.
In California, about 7.4 million private sector employees aged 25 to 64, or 61%, have not had access to an employer-sponsored retirement plan, according to a 2019 study by Nari Rhee, director of the retirement security program at the Center for Labor at the University of California. Research and education.
His research found that 54% of the state’s private sector employees either did not have a retirement savings account or did not participate in a pension.
Rhee said The Sacramento Bee House pension reform legislation, which passed the House Ways and Means Committee in a voice vote last month, “tinkers around the edges of the pension system and therefore will have a modest impact on household retirement assets “.
The Senate is considering similar legislation with strong support from Democrats and Republicans.
All of this is the latest installment of retirement reform that was easily passed by Congress in 2019, legislation that further encouraged employers to offer employees 401 (k) plans and other options.
David Certner, legislative adviser to AARP, noted that while the changes would be significant, they tend to be incremental, so it’s not as if people will see sudden and dramatic changes in the way they save for. retirement or receive benefits.
SIMPLIFYING RETIREMENT SAVINGS
Among the provisions of the House bill:
■ Automatic registration. Most new employers should register employees if the 401 (k) or 403 (b) plans are new. Employees could withdraw. Certain businesses would be exempt: those with 10 or fewer employees, those that have been in business for less than three years, and religious and government regimes.
Employees would automatically contribute at least 3% of their income in the first year. The percentage would then increase in the years to come.
■ Help for small businesses. The bill increases credit for small businesses that launch employee pension plans by 50 to 100%. administrative costs up to $ 5,000. Employers with up to 50 employees would be eligible. The bill also adds a credit for a small employer who makes contributions on behalf of employees to a pension plan.
Selenski called credits and automatic enrollment “two of the most important provisions.”
Lynn Dudley, senior vice president of global retirement and compensation policy at the American Benefits Council, said these characteristics could potentially “stimulate small businesses where coverage is weakest.” Small businesses are usually where you see this because it is very difficult to maintain a plan. “
As of July 2019, California has required private employers with more than five employees who do not offer a private retirement program to join CalSavers, which automatically enrolls employees in an individual retirement account. The legislation would provide incentives to start new plans and, therefore, could reduce the number of employers joining CalSavers, Selenski said.
“That would be perfectly fine from our point of view, as our mission is to extend retirement security and we are indifferent whether this happens through CalSavers or through increased participation in private plans,” he said. she declared.
HELP FOR OLDER WORKERS
■ Higher age for withdrawals. Right now people have to withdraw a certain percentage from their pension plan starting in the year they turn 72. This age would increase to 73 in 2022, 74 in 2029 and 75 in 2032.
Not all experts applaud this change.
Allowing seniors to delay withdrawing money from their accounts “would have major consequences, some unintended. And that wouldn’t be cheap, ”said Howard Gleckman, senior researcher at the non-partisan Tax Policy Center.
He argued that the new policy would primarily benefit the wealthier retirees. Gleckman cited 2018 data from the Internal Revenue Service showing that about 17% of taxpayers with adjusted gross income over $ 100,000 took more than half of the $ 253 billion in IRA distributions, while those earning $ 50,000 or less took about 20%.
■ Higher contribution limits. When a person turns 50, they can increase their IRA contributions each year by $ 1,000. The bill would also allow for an inflationary increase in this additional contribution from 2023.
In addition, the overall catch-up limit, which allows people over 50 to put extra money into their retirement account, would also increase. The current annual limit is $ 6,500.
The bill would increase it to $ 10,000 per year for most people aged 62, 63 and 64. The limit of $ 10,000 could be adjusted for inflation.
“For middle- and high-income households approaching retirement, the improved catch-up contributions will help. Rhee said.
ASSISTANCE TO PART-TIME WORKERS
■ Part-time workers. Companies offering a 401 (k) must now allow employees working at least 500 hours per year for three consecutive years to participate in the plan. The bill lowers the requirement to two years.
“It’s very important at the moment, especially after the pandemic is over. People can tinker with two jobs or work a part-time job, ”Dudley said.
■ Paper declarations. People would be required to get annual paper statements showing the status of their retirement benefits. AARP strongly supports this feature.
Certner said it makes it easier for people to understand and manage their different diet options and track their benefit amounts.
Many people, especially retirees and people with low incomes or who live in rural areas, may not have broadband access or be able to navigate electronic information.
■ Student loan debt. The proposed legislation would allow employers to match contributions to retirement accounts against the employee’s student loan obligations. In other words, instead of just going into a retirement account like an employer currently does, the match would go towards paying off the loan.
■ Small incentives for employee contributions. Employers cannot offer incentives to people who contribute to a pension plan. The bill would allow small incentives, such as gift cards.