Senate Pension Bill Eases Auto Enrollment, Auto Increase Provisions

June 9, 2005 ( - A bipartisan pension reform measure introduced Thursday in the US Senate encourages plan sponsors to institute automatic plan enrollment and extends tax credits for workers who save, among other provisions.

>A joint news release from Senators Gordon Smith, (R-Oregon), and Kent Conrad, (D-North Dakota), said the Retirement Savings and Security Act of 2005 “broadens the ability of Americans to save for retirement and make their savings last for their lifetime.” Smith and Conrad are both members of the influential Senate Finance Committee charged with writing tax legislation.

“The face of retirement is changing and we have to keep up with it.   People are living longer and traditional pension plans are becoming less common,” Smith said, in the announcement.   “We need to make it easier for people to save money, and give them better options for guaranteeing a steady source of income in their golden years.”

>Added Conrad: “This bill provides working Americans the tools to make saving for retirement easier, and make those savings last. Workers today face many retirement uncertainties, with questions about the future of their pensions and Social Security. Here we have an opportunity to provide working families some ways to make their retirement secure.”

>Under the Smith-Conrad proposal, employers who adopt auto enrollment, auto increase, an accelerated vesting schedule and a certain level of contributions will receive relief from complex nondiscrimination testing and top-heavy rules, according to background materials also released Thursday. The bill will also clarify that automatic enrollment is not impeded by state wage withholding laws and will direct the Department of Labor to provide guidance on appropriate default investments for auto enrollment arrangements and defined contribution plans.

>According to the news release, the bill, in addition to the auto enrollment feature:

  • extends the Saver’s Credit, a tax credit for low and moderate-income individuals who contribute to workplace retirement plans and Individual Retirement Accounts. The original tax credit is scheduled to expire next year; the Smith-Conrad bill would extend it to 2010.
  • allows transfers from Flexible Spending Accounts (FSA). This provision would allow transferring up to $500-a-year in unused health FSA amounts to a defined contribution plan or IRA. Current law bars Americans from tapping any money left over in FSAs by 2 ½ months after the end of the year.
  • gives taxpayers the ability to electronically direct tax refunds into IRAs.
  • encourages retirees to invest in life annuities by making a portion of certain annuity payments free from taxation.


After the announcement of the bill, the American Benefits Council released a statement supporting it.

“We hope this balanced, bipartisan legislation will quickly gather widespread support of other senators,” President James Klein said in the statement. “ We know that automatic enrollment and automatic contribution increase provisions to these plans enable more workers to begin saving for their retirements and to make contributions on a more practical and useful scale. Enactment of the Smith-Conrad legislation will encourage many more employers to offer these programs and help create a culture of savings in America.”

>The Principal Financial Group likewise supported the measure in a statement. “The personal savings rate in this country is alarmingly low and trending downward,” said Larry Zimpleman, president of Retirement & Investor Services, The Principal. “The Smith-Conrad bill would encourage more employers to offer the auto-savings tools we know can help turn that trend around: automatic enrollment and automatic deferral increases. Those ‘do-it-for-me’ options have proven to dramatically increase participation and savings in employer-sponsored plans but unclear rules are preventing widespread adoption. By simplifying and clarifying complex regulations, this proposal paves the way for more employers, particularly in small and   medium sized businesses, to put these successful savings tools into action.”

>Similar bills providing safeguards for automatic enrollment have previously been introduced in the House , in which Rep.   Rahm Emanuel (D-Illinois) attempted to make it so automatic enrollment is not inhibited by state laws (See  401(k) Automatic Enrollment Support Bill Introduced in Congress ) and the Senate, where Senator Jeff Bingaman’s (D-New Mexico) bill supports plans that implement both automatic enrollment and an automatic increase in a  participant’s savings rate, unless the participant elects otherwise (see  PSCA Throws Weight Behind Automatic Enrollment Bill ).