Everyone loves an upgrade. Whether it’s upgrading to business class on a flight or to a nicer rental car, upgrades offer a little more comfort and happiness.
Now Congress is considering improvements to something that is central to our comfort and happiness, as well as our peace of mind: retirement savings. The Retirement Enhancement and Savings Act (RESA) will not only make some improvements to the current system, but also provide access to workers who may not currently contribute to an employer-sponsored retirement plan.
Passed on a bipartisan, unanimous basis by the Senate Finance Committee in 2016, RESA has a new opportunity to improve the already-strong employer-based retirement system if included in the federal budget package under consideration now. It would not only help Americans boost their savings but provide a means to secure retirement income for life to supplement Social Security.
Enjoying support from AARP, financial services providers and numerous other stakeholders helping Americans prepare for retirements that could last decades, RESA pulls together a variety of proposals that have been around Capitol Hill. But, on their own, they lacked the thrust to power them into law. Put together, they represent a fully-loaded set of reforms to address retirement security challenges many Americans face today.
The reforms encourage retirement plan creation and increased savings at small businesses. This is absolutely vital since employees at the nation’s largest firms are much more likely to have access to a 401(k) plan than employees at small firms.
One provision encourages small employers not yet prepared to sponsor their own retirement plans to join an “Open MEP,” a multi-employer plan, to achieve economies of scale and to share the costs associated with plan administration.
Another RESA provision provides a tax credit toward plan start-up costs. The bill also encourages savings by removing the red tape associated with “auto enrollment” features, allowing employers to automatically increase employee contributions to plans. Employees would be allowed to opt-out of such increases.
Furthermore, RESA makes it easier for employers to offer annuities—the only product that can guarantee a lifetime stream of retirement income. In many ways, this provision helps recreate traditional pension plans that used to promise workers that no matter how long they lived, they’d get a monthly check thanks to their former employer.
RESA also ensures workers’ lifetime income protections would continue should the employers’ plan change. It would permit participants to roll over lifetime income options to an IRA that provides the same or similar lifetime income protection.
The need for this legislation is clear. Every day 10,000 Americans will reach age 65, and half will live to age 85 or older. Without help, many people throughout the country and across the economic and political spectrum will be unprepared for retirements that could last 20, 30 years or more.
Through the Retirement Enhancement and Savings Act, more American workers will have access to an employer-sponsored retirement plan to help them save for their retirement. Enacting RESA will help to increase savings and provide important retirement planning information to workers.
It is an upgrade we all deserve.
Kempthorne is American Council of Life Insurers President and CEO.