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

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.