One of the 2020 Democrats is helping lead a new effort to require companies to help their employees save for retirement.
Sen. Amy Klobuchar of Minnesota has joined Sen. Chris Coons, a Delaware Democrat, in the effort. The new bill from the two senators also would set up a portable retirement account for employees of small businesses modeled on the federal workforce’s Thrift Savings Plan.
“Hardworking families in America often don’t have enough money in their savings account for an emergency — let alone retirement down the road. The Saving for the Future Act will help close the wealth gap, prepare families in case of an emergency, and set workers up for a successful retirement,” Klobuchar said in a statement ahead of a call with reporters about the proposal.
The legislation also seems to recognize the reality that employers aren’t offering old-fashioned pension plans, and that many workers are not participating in retirement plans at all.
It would require employers with 10 or more workers to contribute at least 50 cents for each hour worked to a retirement savings vehicle of some sort. That could include employer-based contributions to existing 401(k) plans. The smallest employers would be exempt, but they could still take part and benefit from tax credits.
David Madland, a senior fellow at the Center for American Progress Action Fund, was among those from outside the Capitol endorsing the coons-Klobuchar proposal.
“The Saving for the Future Act takes important steps to help address the country’s looming retirement crisis. It enables workers that lack access to save in a high-quality retirement plan and pushes all employers to contribute towards their employee’s retirement so that workers don’t have to do it on their own,” Madland said in a statement.
For employers with fewer than 100 employees, their contributions could flow to the new savings and retirement product which would be called UP accounts.
According to a fact sheet, the UP-Savings account would automatically get the first $2,500 in contributions, to set up a floor for an emergency fund, with funds above that level going into a retirement portion that would be built off the model of the TSP.
“By establishing a minimum savings contribution for the American worker, we can ensure that Americans working hard to pay their bills have savings in place to eventually retire and to deal with emergency expenses along the way,” Coons said. “We need big, bold proposals to make our economy work for everyone — not just a few wealthy people at the top — and I believe this bill can not only create that change, but also has a chance of actually becoming law.”
There also would be automatic enrollment, and the default investment for the retirement portion would be a target-date fund, with oversight from a Senate-confirmed management board.
“The Board is required to contract out the administration of UP Accounts to a financial services company, and the Board must ensure that participants provide a menu of investment products that allows for diversification across stocks and bonds, including low-fee index funds,” the fact sheet said.
“Workers are automatically enrolled to contribute 4% of their own earnings, but may opt out or select a different contribution level,” the fact sheet explained. “Worker contributions automatically rise to as high as 10%.”
The fact sheet also explained that employers would have a tax incentive for compliance, with credits estimated to cost between $200-250 billion over 10 years. As has been the case with some other plans proposed by Democrats seeking the presidency in 2020, the revenue offset would be derived from rolling back a slice of the 2017 tax code overhaul.