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Bill to Help Americans Better Prepare for Retirement Introduced by Leaders of Senate Aging Committee

Senators Bill Nelson and Susan Collins present Retirement Security Act of 2014

Sen. Bill Nelson & Sen. Susan Collins

Jan. 29, 2014 – The two ranking members of the Senate Special Committee on Aging – Sen. Bill Nelson (D-FL), chairman, and Sen. Susan Collins (R-ME), ranking Republican – joined forces to introduce legislation today that would encourage small employers to offer retirement plans, encourage employees to save more for retirement, and ensure that low- and middle-income taxpayers are able to claim tax benefits for retirement savings already authorized in law. The goals of the bill seem to answer the plea by President Barack Obama in the State of the Union last night, where he said, Let’s do more to help Americans save for retirement.”

As Americans live longer, they are growing increasingly concerned that they may not have sufficient savings to maintain their standard of living in retirement,” they explained in a news release. “The fact is, more and more retirees are reliant on their own savings and investments to help them enjoy what should be their “golden years,” yet these savings are falling short.”

 

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 “I have heard countless stories of retirees whose savings did not go as far as they anticipated,” said Senator Collins. 

“Nationally, one in four retired Americans has no source of income beyond Social Security.  In Maine, the number is one in three.  Four in ten rely on that vital program for 90-percent of their retirement income.  Yet, Social Security provides an average benefit of just $1,294 per month – less than $16,000 per year.  It’s hard to imagine stretching those dollars far enough to pay the bills and, certainly, a “comfortable retirement” is out of the question.”

Too many people are retiring with too little,” said Senator Nelson.  “This common-sense and bipartisan legislation will increase access to retirement plans and make it easier for folks to put more money aside.”

Their Retirement Security Act of 2014 would make it easier for smaller businesses to provide access to retirement plans for their workers which would help make a significant difference in the financial security of many Americans.  The legislation focuses on reducing the cost and complexity of retirement plans, especially for small businesses, and on encouraging individuals to save more for retirement. 

The Retirement Security Act of 2014 would:

Encourage small businesses to offer retirement plans. 

Cost is a significant reason that more small businesses do not offer retirement plans.  The bill would lower costs by allowing small businesses to join multiple employer plans (MEPs) to share the administrative burden of a retirement plan. 

It achieves this by waiving the requirement that there be some connection, or “nexus” among unrelated businesses in order to join a MEP.  Only businesses with fewer than 500 employees are eligible for this waiver.

Second, under current law, one businesses’ failure to meet the minimum criteria necessary to maintain a tax-preferred retirement plan can endanger benefits for all MEP participants.  The bill would direct the Treasury Department to issue regulations to address this issue. 

The bill reduces costs for all businesses by directing the Treasury Department to simplify, clarify, and consolidate notice requirements for retirement plans.

Allow employees to save more.

The existing safe harbor for so-called “automatic enrollment” plans effectively caps employee contributions at ten-percent of annual pay, with the employer contributing a “matching” amount on up to six percent.  The bill would create an additional safe harbor for these plans that would allow employees to receive an employer match on contributions of up to ten-percent of their pay. 

Employees would be able to contribute more than ten-percent, albeit without an employer match.  The bill helps the smallest businesses – those with less than 100 employees – offset the cost of this additional match by providing a new tax credit equal to the increased match.

Ensure that low- and middle-income taxpayers can utilize existing incentives to save.

The tax code currently provides a non-refundable credit of up to $1,000 for eligible individuals ($2,000 for joint filers), who contribute to IRAs or employer-sponsored retirement plans.  This credit is only available to low- and middle-income individuals.  Yet the credit cannot be claimed on a Form 1040EZ.  This bill would direct Treasury to make the credit available on Form 1040 EZ. 

Last year, Senators Nelson and Collins held a hearing to examine retirement security.  Witnesses described their fear that they will outlive their savings. 

According to the non-partisan Center for Retirement Research at Boston College, there is an estimated $6.6 trillion gap between the savings American households need to maintain their standard of living and what they actually have. 

The legislation, introduced by Senators Nelson and Collins, is aimed at making  it easier for small businesses to provide access to retirement plans for their workers and would make a significant difference in the financial security of many Americans.


Statement by President Barack Obama, State of the Union 2014

"Let’s do more to help Americans save for retirement. Today, most workers don’t have a pension.  A Social Security check often isn’t enough on its own.  And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401ks.  That’s why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a new savings bond that encourages folks to build a nest egg.  MyRA guarantees a decent return with no risk of losing what you put in. 

"And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans.  Offer every American access to an automatic IRA on the job, so they can save at work just like everyone in this chamber can.  And since the most important investment many families make is their home, send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive for future generations of Americans."

 

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