It has now been nearly a month since the U.S. House Budget Committee completed its virtual markup of the Build Back Better Act, an ambitious omnibus reconciliation bill which includes some notable provisions that would affect the retirement plan industry.
The committee reported the legislation to the U.S. House of Representatives with a favorable recommendation, setting it up for full debate and consideration by the House. As experts have emphasized, the mechanics of congressional budget reconciliation legislation are complicated, but the key factor at play is that such reconciliation bills are not subject to filibuster. In other words, that means the legislation needs only a simple majority to pass in the U.S. Senate, and not the 60 votes required for most bills in that chamber. Though the scope of amendments is limited, the lack of procedural hurdles related to the filibuster gives the reconciliation process significant advantages for enacting partisan budget and tax measures.
Fast forward to mid-October, and legislative negotiations about the bill continue—as do the retirement plan industry’s efforts to promote one part of budget package in particular, technically referred to as “Title XII, Committee on Ways and Means, Subtitle B, Part 1, Automatic Contribution Plans and Arrangements.”
Wayne Chopus, president and CEO of the Insured Retirement Institute (IRI), notes that this aspect of the Build Back Better Act passed out of both the House Ways and Means Committee and the Budget Committee. He says it holds the promise of addressing the insecurity and anxiety millions of workers, retirees and their families feel about retirement.
“Our federal government is often criticized for adding requirements to businesses without addressing implementation or cost burdens,” Chopus says. “But this time, they thought ahead and passed measures in the Setting Every Community Up for Retirement Enhancement [SECURE] Act of 2019 to help small businesses afford workplace retirement plans for their employees. The SECURE Act created pooled employer plans [PEPs] that allow small businesses to band together to offer employees a retirement plan and included tax credits to help business owners get started. The law also clarified liability concerns that had created challenges for employers seeking to include protected lifetime income options in plans as a means of addressing workers’ concerns about outliving retirement savings.”
As such, Chopus argues, the stage is set for another round of significant retirement-focused reforms, and it appears many lawmakers feel the same way. Among the most notable reforms the IRI is endorsing is a requirement that small business employers offer their employees a retirement plan. It is also backing a requirement for automatic enrollment retirement plans to include a protected lifetime income distribution option for plan participants with substantial balances.
To this end, the current draft version of the Build Back Better Act would require auto-enrollment retirement plans to offer participants with account balances of $200,000 or more an option to take a distribution of at least 50% of their vested account balance in the form of a protected lifetime income solution. The IRI leadership says this approach would meaningfully expand opportunities for workers to obtain much-needed protection against outliving their savings.
In advocating for these reforms, Chopus cites data published by the American Retirement Association (ARA) suggesting this legislation could increase retirement savings by $7 trillion and create more than 60 million new retirement accounts, the vast majority of which would be among workers earning less than $100,000.
“The magnitude of what this legislation could accomplish should spur our elected leaders to act now,” Chopus says. “Balancing government regulations with addressing societal issues requires careful consideration. Despite significant progress toward expanding retirement plan coverage for workers, more still needs to be done. Requiring those businesses that have not provided a retirement plan to now do so will increase small business employees’ opportunities to save for retirement and lessen fears about whether they can afford to retire.”
Smart, a retirement technology business working on expanding the PEP market in the United States, also continues to offer supportive comments about the draft reconciliation legislation.
“The data is very clear,” says Catherine Reilly, director of retirement solutions at Smart. “The administration of retirement plans is not as burdensome as some have believed, but instead is simple and routine for small employers. This legislation symbolizes a great leap toward the future of retirement security that Americans deserve.”
Outside of the ongoing budget process, U.S. Representative Jim Himes, D-Connecticut, and Senator Mark Warner, D-Virginia, have introduced the Portable Retirement and Investment Account (PRIA) Act of 2021, also designed to provide a retirement savings vehicle to Americans who don’t have access to one.
The legislation would establish a Portable Retirement and Investment Account (PRIA) Fund and a board responsible for establishing regulations for the fund. The bill says the board will manage the fund in the same manner as the Federal Thrift Savings Plan is managed.
The PRIA Act authorizes the director to invest each account into a target-date fund (TDF) based on when the account holder will reach age 65. This is called a “PRIA Basic Account.” Once assets reach a certain amount, the director would contract with an entity to act as trustee and manage the investments. Individuals could elect to roll over their PRIA Basic Account to a PRIA Choice Account, which would allow them to select their own investments.
Accounts for individuals would be established at the same time they receive a Social Security number. Accounts would start with a $500 contribution, and the government would deposit $50 into the account of anyone who completes financial literacy training.