The U.S. retirement system still has a lot of holes in it. First and foremost are the 35% of U.S. private-sector employees whose companies don't provide them with a retirement plan. But even workers with access to a 401(k) or other type of plan at their jobs may not be saving enough. And as the baby boomers roll into retirement, many of them fret about how to convert the savings they've accumulated into an income stream that will last as long as they do.
Congress to the rescue. No, really. A number of pieces of legislation were introduced last year that would have provided solutions for some of these problems. And while the denizens of Capitol Hill seem to spend most of their time trash-talking the opposition, the bipartisan support for retirement measures suggests movement is possible on this issue.
Annuities in plans
Among last year's legislative efforts, the House approved the Family Savings Act, which would pave the way for more companies to make annuities available in retirement plans to provide a flow of income in retirement. Many employers worry that offering an annuity in their 401(k) leaves them open to fiduciary liability if the insurer providing the plan annuity runs into problems. The legislation alleviates those concerns by providing a safe harbor for employers that deploy an annuity in their 401(k) plan.
In late November, Kevin Brady, then chairman of the House Ways and Means Committee, released a package of bills that included provisions from both the Family Savings Act and a Senate measure, the Retirement Enhancement and Savings Act. In addition to providing a safe harbor for annuities in 401(k) plans, Mr. Brady's package allowed for greater portability of 401(k) annuities and supported the creation of open multiple-employer retirement plans, making it more feasible for small businesses to band together to offer a retirement plan. The retirement measures were combined with provisions around taxes and disaster relief.
Also last year, in response to the U.S. student loan crisis, Ron Wyden, D-Ore., ranking member of the Senate Finance Committee, introduced a measure that would let plan sponsors make 401(k) matching contributions for employees who are repaying their student loans.
Though these efforts didn't pan out during the lame duck session of Congress, hopes are high that some type of retirement legislation will be enacted this year.
The fact that the new chairman of the House Ways and Means Committee is a champion of retirement legislation is contributing to that optimism. Richard Neal, a Massachusetts Democrat, sponsored or co-sponsored eight bills related to retirement in the last congressional session, including legislation on issues such as leakage from 401(k) plans, retirement-plan tax credits for small employers and portability of managed accounts.
Mr. Neal is particularly concerned about the many workers who don't have access to retirement plans. Over the last decade, he has introduced legislation each session requiring businesses with more than 10 workers that don't provide a retirement plan to automatically enroll workers in a payroll-deduction individual retirement account, or auto-IRA. Last year Mr. Neal sponsored another measure that would require businesses with at least 10 workers to have a workplace retirement plan that automatically enrolls workers.
His leadership of Ways and Means, which oversees tax policy, gives him a bully pulpit from which to lead the charge on making improvements to U.S. retirement plans. And given the many workers who currently are insufficiently prepared for retirement, improvements are needed.