New bill would provide universal retirement coverage for U.S. workers

Legislation sponsored by Senator Jeff Merkley (D-Oregon) would establish a universal savings account for all working Americans regardless of the size of their employers

Jan 28, 2016 @ 2:32 pm

By Greg Iacurci

+ Zoom

New legislation introduced Thursday would establish a retirement plan for U.S. workers who have no access to a workplace plan, building on other recent retirement coverage initiatives undertaken at the federal and state levels.

The American Savings Act, sponsored by Sen. Jeff Merkley (D-Oregon), would establish a new universal savings account — called an American Savings Account — for all working Americans, regardless of whether they are full-time or part-time employees or the size of their employers.

The legislation is in response to a retirement system that has shifted away from pension plans toward defined contribution plans and has left 68 million working Americans without access to a workplace plan, Mr. Merkley said during a press briefing.

That lack of plan coverage has contributed to a shortfall in retirement savings in the U.S., with the median account balance for those near retirement at $14,000, according to David Madland, a senior fellow at the Center for American Progress.

The retirement plan created by the bill would mirror that of the Federal Thrift Savings Plan, Mr. Merkley said. The Thrift Savings Plan is the defined contribution plan for federal employees and the largest DC plan in the country.

“We really build on an existing model,” Mr. Merkley said.

The legislation would enable employees without access to a workplace plan to automatically enroll at a 3% contribution rate. Employees could opt out or alter their contribution rate as they see fit, up to a maximum $18,000 per year (the 401(k) deferral limit under tax rules). The bill allows for pre-tax and Roth contributions.

The account would be portable across employers, which contrasts with the current 401(k) system, where some employees create a patchwork of different 401(k) plans across various employers as they switch jobs, Mr. Merkley said.

The bill also removes the administrative and financial hassles for small business owners that wish to start a 401(k) plan, according to Michelle Sternthal, deputy director of policy and government affairs at Main Street Alliance, a national network of small business coalitions.

Retirement security is a bipartisan issue, Mr. Merkley said, adding that if the legislation doesn't get passed this year in the midst of the presidential election cycle, he's hopeful that it will pass shortly after the election when the legislature “will have new energy to address this.”

The bill comes amid a broader push to strengthen retirement security. States such as Illinois and Oregon have passed legislation creating automatic-enrollment retirement plans for individuals without access through the workplace. The Department of Labor, at the direction of the president, has provided guidance for other states to proceed with similar actions.

“Part of my work on this was inspired by the conversation taking place in Oregon,” Mr. Merkley said. 'We've tried to make it dovetail very carefully with what Oregon and other states might do.”

For example, employers could choose to sign up with either a state plan or the federal plan under the new legislation.

President Obama has also created a voluntary starter savings account called myRA, that's available through employers.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Featured video

Events

Adviser marketing: 3 strategies for success

To help advisers sift through the noise and execute a marketing plan that will deliver the most ROI, three executives from Carson Group sit down with Shannon Rosic to deliver some strategies you can implement today.

Video Spotlight

The Search for Income

Sponsored by PGIM Investments

Recommended Video

Path to growth

Latest news & opinion

T. Rowe Price steps up its game to serve financial advisers

The Baltimore-based mutual fund giant is more aggressively targeting financial advisers with a beefed-up wholesale crew and placement on custodial platforms.

The most important tax changes for 2018

The Internal Revenue Service issued inflation adjustments to more than 50 tax provisions for 2018.

E*Trade acquiring custodian Trust Company of America

Discount broker buying second-tier custodian for $275 million.

Another thousand Dow points higher, and investors yawn

Market milestones keep falling like dominoes, with 51 records broken so far this year.

LPL retains $570 million with super-OSJ deal

Kansas-based nVision Wealth will come under supervision of Chicago-based IHT Wealth Management.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print