The House passed a bipartisan package aimed at growing Americans’ retirement savings Tuesday evening, sending it to the Senate with broad bipartisan backing.
The bill passed on a 415-5 vote, with just a handful of Republicans voting against it. Ahead of the vote, the Ways and Means Committee added changes to expand and simplify an incentive for low-income savers, incorporate pieces of a similar measure from House Education and Labor Committee leaders and shift effective dates later to account for the year that’s gone by since its introduction.
“In this bill, we take serious steps to address the savings gap,” Rep. Kevin Brady of Texas, the ranking Republican on the Ways and Means Committee, said during a call with reporters. He put forward the legislation with panel Chairman Richard E. Neal, D-Mass.
Brady said it would serve as a “smart, meaningful next step” following a 2019 retirement savings law. That package made changes including raising the age when Americans must start taking money out of their retirement accounts to 72; requiring employers to offer part-time workers access to 401(k) plans; removing barriers for businesses to band together to offer retirement plans in order to cut costs; and allowing annuity options in retirement plans, which are essentially insurance contracts that pay out regularly during retirement.
The latest Neal-Brady proposal would build on those efforts, including by further lifting the mandatory distribution age to 75; requiring part-time employees to be offered access to retirement plans after two years of service instead of three; allowing charities and other nonprofits to offer joint plans and loosening more rules for annuities to boost participation.
Edits to the bill ahead of Tuesday’s vote included the addition of changes to the “saver’s credit,” which offers tax credits to lower earners who stow money in retirement savings accounts. Under current law, the benefit is worth up to 50 percent, 20 percent or 10 percent of contributions to plans, depending on income.
The provision added to the Neal-Brady bill would set the benefit at 50 percent of contributions, phasing the resulting payout down based on income — a more gradual reduction in the benefit than current law. Eligibility for the credit would begin at lower income thresholds than current law, but allow bigger benefits for savers with the lowest income.
The changes take effect in 2027, and would cost around $1.9 billion per year during the latter part of the decade, according to a Joint Committee on Taxation estimate.
Several pieces of that bill overlap with the Neal-Brady measure, including the creation of a “lost and found” database for location of retirement accounts and allowing low-dollar gifts and incentives for employees to join plans, among provisions. Other provisions would supplement the Ways and Means bill, including allowing employers to convert former employees' workplace savings plans into Individual Retirement Accounts as long as they hold less than $7,000, rather than the current $5,000 limit.
The revised bill would also push back when certain provisions would take effect. For example, a requirement that employers offering certain defined contribution plans automatically enroll their employees and increase the contribution rate over time would begin in 2024, instead of 2023. And a benefit for small businesses launching new savings plans would become more generous in 2023, rather than this year.
The package includes four revenue raisers to offset costs over the next decade, which would mostly take effect in 2023, a year later than under the initial bill proposed in May 2021. The biggest offsets would mandate that “catch-up” contributions allowed for employees over 50 be made post-tax to Roth-style accounts, and allow employees the option of putting employer matching contributions into Roth-style accounts instead of traditional tax-deferred accounts.
Roth accounts contain after-tax contributions that grow tax-free and then aren’t taxed when money is taken out. More use of Roth-style contributions would mean more revenue for the federal government over the next decade, because the funds wouldn’t go into plans where tax isn’t paid until it’s withdrawn.
JCT’s estimate found revenue provisions would generate almost $35.9 billion through fiscal 2031, enough to completely offset the measure's cost and have $93 million left over for deficit reduction.
However, because diverting more money into after-tax accounts means less revenue for the Treasury in later years, the net cost of the measure starts to grow towards the end of the 10-year budget window, to $4.5 billion in fiscal 2031. In a statement, Committee for a Responsible Federal Budget President Maya MacGuineas said those costs will rise in later years and called the measure a “mockery of the pay-as-you-go principle.”
Senate weighs in
Senators are meanwhile ramping up their own work on retirement legislation. During a Senate Health, Education, Labor and Pensions Committee hearing on retirement savings Tuesday morning, panel chair Patty Murray, D-Wash., said she’s currently working with ranking member Sen. Richard M. Burr, R-N.C., to assemble and move a retirement package “later this spring.”
“I hope our discussion today will inform and improve these efforts and our Democratic and Republican colleagues will continue to bring forward ideas over the next few weeks so we can build a good bipartisan package that helps workers, retirees and families,” Murray said in opening remarks.
The legislation would build on the House Education and Labor panel’s bill and include additional proposals, according to a committee aide.
Murray pointed to bipartisan Senate bills that are in line with the House legislation as options for the chamber, including those to set up a system for locating lost retirement accounts and expand part-time worker participation in workplace savings plans.
She also showed interest in ideas including adding more annuity options for plans, regularly enrolling workers in savings plans automatically until they opt out, spousal protections, fee disclosures and workplace emergency savings plans that would automatically stow rainy day funds for employees unless they chose to opt out.
The Senate Finance Committee, which like Ways and Means has jurisdiction over retirement policies affecting the tax code, held a hearing on retirement savings last year. Sens. Benjamin L. Cardin, D-Md., and Rob Portman, R-Ohio, have their own bill to try to bolster household savings.
After a House-led effort to get legislation into the fiscal 2022 omnibus package, Senate Finance Chair Ron Wyden, D-Ore., said his committee needed more time to examine the issue and indicated more hearings could be in the works.
During Tuesday’s HELP hearing, Burr said his role on that panel as well as Finance would allow him to play a part shaping both efforts. He emphasized that lawmakers should be cautious to preserve choices for individuals when it comes to retirement and not impose their own prescriptions.
“What I want the most is for Americans to control their own money, have safe options on how to invest and save, and live with as few government and industry middlemen or middlewomen as possible,” Burr said.