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As retirement legislation continues to evolve in Congress, some lawmakers hope to address what they see as a lingering problem: lack of access to a workplace plan among low- and middle-income workers.
A bipartisan, bicameral group of lawmakers has begun work on a bill to tackle this. While the legislation commonly known as Secure 2.0 includes proposals to expand both access and the ability to save, it won’t necessarily reach people whose company offers no plan, say the defenders.
“If Secure 2.0 passes, we’ll still have a fundamental problem,” said John Lettieri, president and CEO of the Economic Innovation Group, which supports the Congressional group’s goal.
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“”Let’s look at where the biggest gap is, i.e. in the bottom 50% [of the wealth distribution]where most workers do not have access to an employer-sponsored plan and do not benefit from current incentives to save,” Lettieri said.
According to the Center for Retirement Initiatives at Georgetown University, about 57 million workers do not have a retirement plan offered by their job. And low-income employees are much less likely to have one: Among those in the bottom 25% of earners, 42% have access to a workbench, compared to 88% in the bottom 25% of earners. the highest, according to a study by the US Bureau of Labor Statistics shows.
The Congress Group – made up of the senses. John Hickenlooper, D-Colo., and Thom Tillis, RN.C., and representatives Terri Sewell, D-Ala., and Lloyd Smucker, R-Pa. — is exploring the idea of a program modeled after the federal Thrift Savings Plan, or TSP, according to people familiar with the group’s efforts. This is the retirement plan offered to federal employees, as well as members of Congress and the military.
The TSP includes some features that research shows improve retirement savings, including automatic enrollment, which began in 2010. Prior to that, the overall participation rate was 60%, according to a 2020 report from the Congressional Budget Office. Once the change was implemented, it was 96.7%.
Among those with a high school diploma or less, the participation rate was 95% five years after the introduction of automatic enrollment, according to a study published last year by Lettierie’s group. Similarly, the bottom third of employees increased their participation from 74% to 95%.
“If you don’t have auto-enrollment, attendance will never be where it’s supposed to be,” Lettieri said.
Secure 2.0 — a version of which was approved by the House in late March — includes provisions to increase access, such as allowing certain part-time employees who work at least 500 hours for two consecutive years to be eligible for 401 ( k) their business. to plan.
Additionally, the bill passed by the House includes a requirement that companies automatically enroll workers in their plan. However, it excludes existing plans, companies with 10 or fewer employees and companies less than 3 years old. And, the Senate proposal wouldn’t require auto-enrollment, but rather incentivize companies to implement the feature — and it’s unclear whether either provision makes it a final bill. .
Yet for plans with an auto-enrollment feature, participation rates can be over 90% – depending on industry and plan details – compared to rates in the 50% range for plans where workers must actively register, according to Pew Charitable Trusts.
The TSP also offers matching contributions of up to 5% of salary (it was 3% before 2020) and is inexpensive (the latest estimate is 0.042% of assets, according to research by Lettieri’s organization). )
The task force will likely release its bill in the coming months, according to a congressional staffer. This isn’t the first time lawmakers have proposed the creation of a TSP-based retirement program, but the legislative proposals have never gained traction.
A handful of states have also launched initiatives to reach more workers, and more are in the works. These programs typically automatically enroll workers into a Roth Individual Retirement Account.
“State efforts are better than nothing, clearly,” Lettieri said. “The challenge is that they [generally] are not transferable across states, do not include matching contributions, and are limited in scale.
“But in the absence of the right kind of federal policy, it’s good for states to try to fill the void where they can,” he said.
Meanwhile, various Senate committees expected to annotate this chamber’s Secure 2.0 proposals this month or next, said Paul Richman, director of government and policy affairs at the Insured Retirement Institute. The Finance Committee alone has over 100 proposals to sort through for inclusion.
Richman’s group, which is waiting to review the findings of the congressional task force, backed a bill that addresses the savings gap differently: Not only would auto-enrollment be mandatory, but all businesses with five or more employers would be required to offer a retirement plan.
“We believe that requiring retirement plans to be offered with automatic enrollment is the way forward … to expand and increase opportunities for workers, especially those in low- and middle-income populations,” Richman said.