Stop Stalling Act And Creates Act
Thanks to my colleague from Maryland for yielding to me. It is great to be back on the floor with him talking about retirement savings. Back in 1996 and again in 2001 and 2006, we passed legislation while we were in the House of…
Thanks to my colleague from Maryland for yielding to me. It is great to be back on the floor with him talking about retirement savings.
Back in 1996 and again in 2001 and 2006, we passed legislation while we were in the House of Representatives together to encourage people to save more for their retirement by providing more incentives, such as increasing, as an example, the amount you could put aside in a 401(k) or an IRA and catchup contributions and simplifying the rules for small businesses, and we made some progress.
Those legislative initiatives resulted in about a doubling of 401(k) assets and about a tripling of IRA assets but still way too little in savings. Senator Cardin talked a little about that. Our national savings rate is a problem. Our personal savings rate is a problem. Our economy would be stronger if we had more savings.
The real problem is that people just aren't saving enough for their retirement. Social Security is an absolutely essential safety net. Everybody wants to be sure it will be there into the future. But it is tough to live on your Social Security benefit alone. People need that private retirement savings.
We want to encourage people to save more for their own retirement. What is more important than peace of mind in retirement, knowing that you have the ability to take care of your needs--maybe long-term care needs, maybe
healthcare needs, or maybe just being able to have a comfortable retirement. This is something we are focusing on again.
The Senate did recently pass legislation that helps. It is called the RESA legislation. We both support that strongly, but our legislation builds on that and expands it pretty substantially. Senator Cardin just talked a little about it. It is legislation that we spent 18 months developing.
We heard from stakeholders all over the country. There is a reason that a lot of people are supporting this legislation, including the AARP, the chamber of commerce, and a lot of people who are in the retirement business--the American Benefits Council and others--because we took our time and went to them and said: Hey, what do people really need right now to expand their choices in retirement to be able to save more?
We came up with four or five different challenges in our current retirement system and then specific proposals to address those.
One is, we have an aging baby boomer population--I am among them, and I think all three of us are, Mr. President--that is not saving enough. That is a concern.
Second is a lack of access to employer-sponsored plans. We want everybody who is in the workplace to have access to a 401(k). Yet, when we look at this, particularly with smaller businesses, a lot of people don't have access or a chance to save.
A 401(k) is great because the employer typically puts in a match for you. So it is not just your money that is at a tax advantage, but, unlike an IRA, the employer puts in a match, and usually they help you with your decisions in terms of what kinds of investments to make with that 401(k).
Third, we found that typically with lower income Americans, there was a real issue with the amount of savings. Who needs money more in retirement than lower income Americans, because that is when they don't have other savings to help them through retirement.
Again, all of this is predicated upon the reality that we are living longer as Americans, longer and healthier lives, so we need more of those assets in retirement.
The final one is inadequate lifetime savings. A lot of people have a 401(k) or an IRA, and when they stop working, they think, this is great. They take the lump sum and maybe spend some of that--maybe buy the boat, maybe go on a nice vacation--and suddenly find, oh my gosh, I am living longer and longer. I hadn't expected to be in my nineties and still here. Yet the trend right now is that people are living longer. We have to ensure that there is longer lifetime savings as people are living longer and healthier lives.
After 18 months working with all these troops on the outside, we came up with 57 different provisions to address these four areas. How do we do it?
First, it allows those who saved too little to set more aside for their retirement.
For seniors--people who are over 60 years old--we have a special catchup contribution. If you are over 60 years old, under our legislation, you have the opportunity to put more aside in your retirement plan. That is important. Contribution limits go from $6,000 to $10,000 for workers over age 60 with a 401(k).
Senator Cardin talked a little about this, but among these baby boomers, based on a 2019 GAO report this year, nearly half--48 percent of all retirees over the age of 55 have no retirement nest egg saved. Some may have a public pension, for instance, but still, when you add that in, 30 percent have neither private retirement savings nor any kind of pension benefits that they are going to get in the future. You have a lot of people out there with nothing. This will help with regard to those individuals.
We also say that with regard to this first issue, it is not just being able to make a catchup contribution, but we tell employers: If you set up a plan that allows you to match 6 percent of pay rather than 3 percent of pay, we will give you a break from some of the onerous retirement rules in a safe harbor.
That will encourage more of those employers to do that. That provides a tax credit to those employers who offer these safe harbor plans. So it gives more generous benefits to employees. We think that is appropriate to help save for retirement. It also helps employees who are struggling to save for retirement and pay off student loan debt, people who are saying: I would love to save for retirement, but how can I do that when I have this student loan debt to pay off?
In Ohio, by the way, the average debt for someone coming out of a college or university is $27,000. A lot of people don't have enough disposable income to say: I am going to save for retirement and pay off college debt.
What we do here is we say that employers will now be able to make a matching contribution to the employee's retirement account in the amount of his or her student loan payment. So employers can do this. It is a good way to help people pay off their debt, to help the individual pay off their debt. The employer putting a match in for the same amount is also a good way to attract employees. If you are a business owner out there, you will like this because it will give you an advantage in the marketplace by saying: Hey, come work for me. We will help you on your student debt.
The second issue we talked about today is with regard to small businesses. This is important because we know that this is where most people work who don't have access to retirement plans. They work for smaller businesses. Bigger businesses tend to offer retirement plans, very generous ones. The smaller businesses tend not to.
The Bureau of Labor Statistics survey that Senator Cardin talked about earlier shows that 68 percent of private sector workers have access to employer-sponsored plans, but it drops to only 49 percent for small businesses. So, if you work for a small business, it is less than half. By the way, it is only 39 percent if you are a part-time worker, which we also address.
The bill takes a number of important steps to help small businesses offer 401(k)s and other retirement plans for the workers. It increases the current law tax credit that is already out there, but it improves it and increases it from $500 to as much as $5,000 for small businesses that are starting new retirement plans. It simplifies top-heavy rules for small business plans to reduce the cost of enrolling new employees. It also establishes a new 3-year, $500-per-year tax credit for small businesses that automatically reenroll all of the participants in the plans at least once every 3 years. This is one of the issues out there. If you don't do auto enrollment--in other words, opt in--and you opt out, you are not going to get the participation rate you want.
By the way, this is legislation that Senator Cardin and I promoted back in the 2006 legislation that said to employers: Hey, you can do an auto enrollment. The participation then went from 75 percent to about 95 percent because there was auto enrollment. It is good for younger people. If you are just told ``Hey, unless you do something, you are going to automatically be enrolled in this 401(k),'' that really encourages them to get into retirement savings. All of that is to help these small businesses, and we think it is going to make a big difference.
Third, one of the big problems we face is that plan participation rates for low-income workers are well below what they are for others. So this bill expands access to retirement savings plans for hard- working, lower income Americans. The way we do that--and Senator Cardin is the expert on this--is to ensure that those people who are of low income have the ability to get into retirement plans with matches. That will incentivize them to get in. Only 22 percent of low-income workers participate in retirement plans today. Again, these are people who need savings the most.
The bill expands what is called the saver's credit. It expands the income thresholds to give more Americans access to increased credit amounts. It increases the government match for low-income savers with a saver's credit. By the way, the saver's credit goes directly into the retirement accounts. I think it is important because you don't want this money wasted, and you don't want it used for other purposes--so- called leakage in retirement accounts. This goes right into retirement accounts. We mentioned that only 39 percent have plans but, again, that only 22
percent participate. So this is important.
It also expands the eligibility of 401(k)s to include part-time workers. This is very important to the AARP and others out there who are looking at these part-time numbers and saying: Oh my gosh. There are only 22 percent who participate. That is it. So we have to do more there. It allows part-time workers who complete between 500 and 1,000 hours of service for 2 consecutive years to be able to join in with a 401(k).
These provisions are all designed to help particularly low-income Americans start to build nest eggs for retirement.
A significant challenge we face--again, as I said earlier--is this lack of lifetime savings. Our bill provides more certainty and flexibility during Americans' retirement years.
Last year, a study by Northwestern Mutual found that 66 percent of Americans believe they will outlive their retirement savings. So two- thirds of Americans are saying: I am going to live longer than my retirement savings. By the way, they are probably right. People are living longer and healthier lives and are running out of their retirement savings. It is a major concern.
We have a number of initiatives to try to provide more certainty and flexibility to seniors in their retirement years. Specifically, the bill increases the age for the required minimum distribution from age 70\1/2\, which it is now, to 72 and to 75. So it takes it up to 75 years old. Why is that important? For those of you who are not in retirement, you may not know there is a rule that says you have to start taking your money out of retirement at 70\1/2\. Now, if you are like my father, who was working full time at 70\1/2\, it was a head scratcher. Why should I take my money out of my 401(k) when I am still working? I ran into a guy like that last weekend in Ohio who said the same thing--that this makes no sense.
What we have said is, OK, we are going to kick it up to 75 years old but that if you have less than $100,000 in your retirement account, you will not be subject to the minimum required distribution rules at all. This is a great relief to a lot of seniors who are trying to save that money for retirement and don't want to pull it out because, although they may work until 75, they still know they are going to have another, maybe, 20 years to live, and they want to be sure they have that retirement savings in there.
I am really excited about all of these provisions.
I am hearing a lot about this last one. Here is Tom Kermode, from Geauga County, OH, who wrote:
Relief from required minimum distributions would be very
helpful in that it affords me and other senior taxpayers the
freedom to save to help fund my retirement years. Why should
I be forced to deplete my retirement account at age 70\1/2\
instead of remaining financially independent?
You are darned right, Tom. Thanks for your letter.
The bill also provides help in other ways. It reduces the current penalty for one's failing to take the required distribution from 50 percent of the shortfall amount to 25 percent in most cases and to as low as 10 percent in some cases if one self-corrects the error.
Finally, in order to help those who are in retirement, the legislation encourages the use of qualifying longevity annuity contracts, QLACs. What are they? They are retirement plans that provide annual payments to individuals who outlive their life expectancies. Basically, think of an annuity or a periodic payment. When you retire, instead of taking a lump sum, you have one of these contracts in which you are able to ensure that you are not going to outlive your retirement savings.
There are affordable options for a lot of Americans who are trying to hedge the risk of outlasting their savings. We should encourage those more, and that is what we do in our legislation.
These are all commonsense reforms. They deal with all four of these challenges that we have seen, as we have looked at the retirement system, that have been based on a lot of input from a lot of people. My hope is that we will be able to get this done.
Our coalition includes the American Benefits Council, the AARP, the U.S. Chamber of Commerce, the Insured Retirement Institute, Fidelity, Nationwide, T. Rowe Price, Vanguard, the Women's Institute for a Secure Retirement, the International Association of Fire Fighters, the American Council of Life Insurers, and The ERISA Industry Committee, to name a few. There are a lot more too.
We have had the opportunity to work together for a couple of decades now on these issues. I am glad that we are taking this next step to provide additional options for people to build and save for their retirements and to have more peace of mind in retirement.
I yield to Senator Cardin.
Mr. President, I thank my colleague from Maryland for his partnership on this over the years.
Let me just make the obvious point for those who are watching today. I am a Republican, and he is a Democrat. We are actually talking about doing legislation together. It is bipartisan. I would say, in the retirement space, we have tried to keep it nonpartisan because this is so important to the people we represent.
The committee also happens to be represented by a Republican and a Democrat who believe in this. Senator Grassley was the chairman of the committee back in 2001 when we first passed this major legislation to increase what people could save for their retirement. He is the chairman again, and he believes in this. Senator Wyden is the ranking Democrat, the top Democrat. He also was a former Gray Panthers executive director and also has a provision in our bill that is very important, as Senator Cardin talked about, with regard to student loan debt.
The constellations are kind of properly aligned. I think the ability for us to get this done might be counter to a lot of the partisanship and the gridlock we see here in this town. This is bipartisan stuff. It always has been. We have spent our time, have done it right, and have used input from all sorts of outside stakeholders. We have the opportunity here to improve our national
savings, which everyone says is important, including the Congressional Budget Office, and to help people have peace of mind in retirement. What could be more important?
Again, I thank my colleague from Maryland for allowing me to join him on the floor to talk about the importance of this legislation.
I urge my colleagues on both sides of the aisle to take a look at this. I hope they will sign it and be cosponsors on this legislation. Let's get this passed. Let's do it this year.
I yield the floor.
Nomination of Kenneth Kiyul Lee