Employer’s mandate to deliver a pension plan faces headwinds

Qualified employees would be automatically enrolled in the plans – with target date funds as the default option – at a 6% contribution rate that would be increased – unless members opt out – by 1 percentage point each year until it reaches 10%. For IRAs, the Internal Revenue Service contribution limit is $ 6,000 for most people and $ 7,000 for people over 50.

Employer contributions would not be required, but failure to offer a plan would result in an excise tax of $ 10 per day per employee. Smaller employers would benefit from tax incentives to offset start-up costs.

The proposal would also require plans to provide plan members with more than $ 200,000 in their accounts the option of receiving a distribution of at least 50% of their vested account balance in the form of a protected lifetime income solution.

Also included is a provision making the savings credit – a federal tax credit designed to encourage low-income American workers to save for retirement – refundable so that those without income tax are eligible to receive the tax credit. benefit in the form of a contribution to their retirement account.

Melissa Kahn, managing director of Washington-based retirement policy for the Defined Contribution team at State Street Global Advisors, called the proposal a “game changer” because it would “dramatically” increase the number of people with access to a workplace pension plan. Retirement experts often talk about getting people to save more for retirement and better ways to manage retirement assets, she said. “But if you don’t have access to a plan, you never have access to any of these other issues, which is why we think this is such a critical proposition,” Ms. Kahn said. .

Two-thirds of workers in the private sector had access to employer-provided pension plans as of March 2020, of which 52% had access to a defined contribution plan, according to Bureau of Labor Statistics data released in March. But for workers whose wages were among the lowest 25%, the percentage fell to 42% with access to a plan.

Too many employees, especially those who work for small businesses, are still not covered by a plan, said Wayne Chopus, president and CEO of the Washington-based Insured Retirement Institute, which represents the major insurers, fund managers, brokers and financial professionals. , in a report. “It puts too many workers at risk of not saving enough for retirement, which can last 20 or 30 years or more,” he said. “We need to take further steps to address inequitable access to an efficient way to accumulate retirement savings, and this legislation is a sensible step to do so.”

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