Weekly Column: Increasing Retirement Savings Opportunities

Saving for retirement is important but often difficult, especially when faced with the increased uncertainty of the pandemic.  When paychecks have to cover mortgages, rent, car payments, food, utilities, gas, college and other important obligations, steady retirement savings is often challenging, if not nearly impossible.  Unexpected medical expenses or car repairs can upset even the best retirement plans.  Recognizing the challenges, Congress has taken steps to increase retirement savings opportunities for American workers and families.

Last December, Congress passed and the President signed into law the bipartisan Setting Every Community up for Retirement Enhancement (SECURE) Act of 2019.  The SECURE Act would better enable Americans to save for retirement: 

• The law would make it easier for workers at small companies to have retirement plans by improving access to and the appeal of multiple employer plans (MEPs).  MEPs enable small employers to work together to obtain more favorable and less expensive pension investment options. 

• The law recognizes the value of automatic enrollment in retirement plans in increasing employee participation and higher savings.  It provides for the creation of a tax credit of up to $500 per year to employers to help with startup costs for new retirement plans that include automatic enrollment.  This credit complements an existing plan start-up credit and can also be used by employers that convert an existing plan to a plan that includes automatic enrollment. 

• The law better enables long-term, part-time workers to participate in 401(k) plans.  The House Ways & Means Committee explained in a summary of the legislation that under previous existing law enabling the exclusion of part-time employees from defined contribution plans, women, who have been more likely than men to work part-time, could especially have difficulty preparing for retirement. 

• The law permits penalty-free withdrawals from retirement plans for qualified births and adoptions.

• Tax law treatment of taxable income is addressed to enable home health care workers to save for retirement in a defined contribution plan or IRA. 

• The law better protects the benefits of older, longer-term employees as they near retirement.

• Further, the allowable use of 529 education savings is expanded to include costs associated with registered apprenticeships; homeschooling; up to $10,000 of qualified student loan repayments (including those for siblings); and private elementary, secondary or religious schools. 

Additional changes made through the law can be reviewed in the summary and text available here: https://waysandmeans.house.gov/media-center/press-releases/ways-means-committee-passes-landmark-retirement-legislation. This law builds on the enactment of the Tax Cuts and Jobs Act that is helping to improve the conditions for retirement by providing enhanced investment benefits allowing retirement portfolios to increase in value, as market conditions continue to improve. 

In a pamphlet providing 10 tips on saving for retirement, the U.S. Department of Labor (DOL) reports:

• “Only 40 percent of Americans have calculated how much they need to save for retirement.
• In 2018, almost 30 percent of private industry workers with access to a defined contribution plan (such as a 401(k) plan) did not participate.
• The average American spends roughly 20 years in retirement.”

It is important to remember that no matter how hard now it seems to save for retirement, as the DOL points out, “Remember, it’s never too early or too late to start saving.”  I am hopeful this federal statute helps make it easier for Idahoans to save for retirement.   Bipartisan work remains ongoing and productive, as bipartisan leaders in both houses of Congress have developed additional promising ideas that should see action in the next Congress.

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