Ask Matt: Retirement Savings Legislation Update
Retirement and wealth strategies expert Matt Sommer answers questions from advisors on market events, legislation and trends that may impact their clients’ investments.
How might recent Capitol Hill initiatives impact the ongoing retirement savings crisis?
It’s no secret that one of the largest economic dilemmas facing the country is Americans’ lack of retirement planning resources. Small businesses (fewer than 100 employees) employ roughly a third of all private sector workers, yet only 14 percent of these businesses maintain a retirement program, according to a report issued by the Government Accountability Office in 2013. Nearly half (47%) of participants in the most recent Retirement Confidence Survey, published by the Employee Benefit Research Institute, have less than $25,000 in savings and investments.
The situation has devolved to the extent that even non-traditional retirement players are getting involved. Enter the U.S. government.
A bipartisan group of state and federal officials are currently getting behind the first major pieces of retirement legislation since 2006. These proposals have garnered broad congressional support and encompass an equally broad slate of topics including:
- Group retirement plans
- Automatic savings features and accounts
- Mandatory plans
- Lifetime income
- Electronic statements
With the midterm elections looming and the prospect of executive support far from certain – the Trump administration last year ended the MyRA retirement savings program – the bills’ future hangs in the balance. In the meantime, here is a look at three initiatives on the table and their potential impact.
- American Savings Act. Sen. Jeff Merkley, D-Ore., reintroduced the American Savings Act, which allows employers who do not maintain a retirement program to automatically enroll each employee into an American Savings Account beginning at 3 percent of salary. Employers would not be required to contribute but will be responsible for facilitating employee contributions via their payroll systems.
- Retirement Security for American Workers Act. Congress is also considering the Retirement Security for American Workers Act, which would make multiple employer pension plans (MEPPs) more accessible to private businesses. By pooling investments, participating businesses can defray expenses and eliminate some administrative requirements.
- State-sponsored savings plans. A rising number of states have enacted legislation to address the lack of coverage and inadequate savings. The most popular approach requires businesses that do not offer a private sector retirement plan to enroll employees into a state-run retirement savings program automatically. Oregon is the first state to participate, and 954 businesses have employees in the program, according to state officials. Illinois is planning to launch its pilot program later this year. Other states have taken a different approach: Washington has created a marketplace where businesses can shop for vetted, low-cost solutions, while Vermont created a state-run MEPP, open to businesses in the state with fewer than 50 employees.
As government officials work to redefine what retirement looks like in 2018 and beyond, it’s important for financial advisors to be active participants rather than spectators. Time will tell whether these and other governmental efforts may have a positive effect, and future developments should be followed and analyzed by the advisor community.
One thing seems certain: the planning process is not going to get less complex. New legislative opportunities mean more moving parts, more forms and more jargon for clients to digest and understand. The efforts outlined above are a worthy first step, but the ultimate responsibility for helping secure financially comfortable retirements lies with employers and individuals. Both groups should plan accordingly.
The original version of this article ran on ThinkAdvisor.com on August 7, 2018. Click here to read the entire article.
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