Two bills introduced in the House of Representatives by Rep. Richard Neal, D-MA, would dramatically expand access to workplace retirement savings plans and provide for a more muscular automatic enrollment safe harbor.
The Automatic Retirement Plan Act of 2017 would require private sector employers with more than 10 employees to offer a defined contribution plan. Employers would not be required to contribute to the plans. Non-compliance would be subject to an excise tax.
According to the Bureau of Labor Statistics, only half of Americans that work for an employer with fewer than 50 employees have access to a workplace savings plan; 33 percent of Americans employed by companies with 50 to 100 workers are without access; and nearly 20 percent employed at companies with 100 to 500 workers are without access.
Government employers, churches, and startups would be exempt from the requirement.
Employers with up to 100 workers would have as much as $5,000 in tax credits for five years to cover the cost of plan administration.
The bill would also pave the way for Open Multiple Employer Plans, which would allow employers with fewer than 100 workers to pool assets under one plan. Employers in open MEPs would have no fiduciary liability—that would be borne by the plan provider.
Auto-IRA programs administered at the state level would supersede the federal mandate, so long as state legislation was passed before enactment of the bill.
Under Rep. Neal’s proposal, employees would be automatically enrolled at a 6 percent of salary savings rate. If workers opt-out, or reduce their deferral, then employers would be required to re-enroll participants at 6 percent after three years.
Deferrals would automatically escalate 1 percent annually, until participants reached a 10 percent savings rate.
At retirement, at least half of account values would be distributed in an annuity.
Temporary employees, those under 21, those without citizenship, and those already in collectively bargained retirement plans would not be required to be enrolled.
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Retirement Plan Simplification and Enhancement Act of 2017
Neal’s second bill would amend the existing safe harbor for automatic enrollment by eliminating the automatic escalation cap of 10 percent.
The Retirement Plan Simplification and Enhancement Act would also create a new auto-enrollment safe harbor, raising the 3 percent deferral minimum to 6 percent.
The minimum default level would step up annually, increasing to 7 percent in the second year of enrollment, until deferral rates hit 10 percent.
Employers would be required to make matching contributions to meet the safe harbor.
A participant’s first 1 percent deferral would have to be completely matched by employers. The next 5 percent deferral would have to be matched at 50 percent, and the next 4 percent deferral would have to be matched at 25 percent.
To address the new costs for employers under the proposed safe harbor, the bill would create tax credits for plans with fewer than 100 participants.
The bill includes a host of other provisions. One would allow contributions to traditional IRAs after age 70½ , similar to Roth IRAs. And the required minimum distribution age for 401(k) would be increased, ultimately to age 73 by 2029. Accounts with less than $250,000 would not require RMDs.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
