Retirement Reform Moves Forward in the Senate

The Senate now has two bills out of committee that will have to be reconciled with a companion House bill before moving to the president’s desk.

Senate Finance Committee Chairman Ron Wyden, D-Oregon, and Ranking Member Senator Mike Crapo, R-Idaho, introduced the fully amended legislative text of the Enhancing American Retirement Now Act on Thursday. The EARN Act had previously passed in the committee 28-0 in June.

Dan Zielinski, a spokesperson at the Insured Retirement Institute, explains, “There is no substantive difference between the text that was released yesterday and what the Finance Committee approved in June. It’s conceivable that there were a few technical tweaks but nothing that would alter the substance.”

He also says that he expects a successful vote on a final bill sometime between Election Day and the end of the year.

The EARN Act is accompanied by the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act, aka the RISE and SHINE Act, which is moving through the Senate Committee on Health, Education, Labor and Pensions.

In March, the full House of Representatives passed their own companion bill, the Securing a Strong Retirement Act, by a near unanimous vote. The two Senate bills are expected to be the starting point for negotiations and conciliations with the House version.

In its current form, the EARN Act broadly reforms American retirement plans. The changes the bill would make include:

  • Employers would be permitted to match student loan payments as if they were 401(k) contributions to an employer-sponsored plan. This would take effect after 2023.
  • Previously, employers with a 401(k) plan had to enroll any employee who worked 500 hours a year for three consecutive years. This would be reduced to two years.
  • Current law places a 10% tax on early withdrawals. Under the EARN Act, one could withdraw up to $1,000 per year for qualifying emergencies without a tax penalty. One would have to wait up to three years before doing so again, unless the withdrawn amount is repaid early.
  • Americans age 60 to 63 could contribute up to $10,000 over the IRS cap.
  • Survivors of domestic abuse could withdraw up to $10,000 or 50% of their account total, whichever is less, without incurring the 10% tax.
  • Required distributions would not start until age 75, as opposed to 72 under current law. However, this provision does not take effect until 2031.
  • The current tax credit for individual contributions to retirement plans could be received as a government contribution to the plan, instead of cash as part of a tax return, of up to 50% of the individual’s contribution or $2,000, whichever is greater.
  • An eligible employer of 100 or fewer employees would receive a tax credit equal to their contributions to an employer-sponsored plan, but only up to the first 2% of the employee’s contributions and for their first five years of employment.

“I’m proud that we are making significant progress for millions of low- and middle-income workers, who are far less likely to have adequate retirement savings,” said Wyden in a press release. “These workers frequently have physical, demanding jobs, and often depend solely on their Social Security income. Too often, they simply do not have resources to last through retirement. Under our reforms, many more workers would access resources for retirement and see meaningful federal retirement contributions year after year.”

Crapo also said in a press release, “The EARN Act expands opportunities for Americans to increase their retirement savings and improves workers’ long-term financial well-being.”

It is unclear what precisely will happen next, but both expert opinion and these reforms’ broad support suggest that a final bill will be passed in the coming months.

An executive summary is available here.

The full text is available here.