On Senate Floor, Portman Highlights His Bipartisan Retirement Security & Savings Act
WASHINGTON, DC - Today, U.S. Senators Rob Portman (R-OH) and Ben Cardin (D-MD) spoke on the Senate floor about their bipartisan Retirement Security & Savings Act (S.1431), a broad set of reforms designed to strengthen Americans’ retirement security by addressing four major opportunities in the existing retirement system: (1) allowing people who have saved too little to set more aside for their retirement; (2) helping small businesses offer 401(k)s and other retirement plans; (3) expanding access to retirement savings plans for low-income Americans without coverage; and (4) providing more certainty and flexibility during Americans’ retirement years. The measure includes more than 50 provisions to accomplish these objectives.
Transcript of Senator Portman’s remarks can be found below and a video can be found here.
“Thanks to my colleague from Maryland for yielding to me and it's 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 when we were in the House of Representatives together to encourage people to save more for their retirement by providing more incentives, increasing, as an example, the amount you could put aside in a 401(k) or an IRA, having catch-up contributions, simplifying the rules for small businesses. And we made some progress and 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 and Senator Cardin just talked a little about that.
“Our national savings rate is a problem, our personal savings rate is a problem, our economy would be even stronger if we had more savings. But the real problem is that people just aren't saving enough for their retirement. Social Security is an absolutely essential safety net. Everyone wants to be sure it will be there into the future but it's tough to live on your Social Security benefit alone so people need that private retirement savings, and we want to encourage people to save more for their own retirement. What is more important than peace of mind in retirement, to know that you've got the ability to take care of your needs, maybe it's long-term care needs, maybe it's health care needs, maybe it's being able to have a comfortable retirement, and so this is something that we're focusing on again.
“Now, the Senate [Finance Committee] did pass recently legislation that helps. It's called the RESA legislation, and we both support that strongly. But our legislation builds on that and expands it pretty substantially. Senator Cardin talked a little bit about it, but it is legislation that we spent 18 months developing. We heard from stakeholders all over the country. There's a reason that a lot of people are supporting this legislation, including the AARP, including the U.S. Chamber of Commerce, including a lot of people who are in the retirement business, the American Benefits Council and others. Because we took the 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've got an aging baby boomer population. I'm among them. I think all three of us are, Mr. President, who are not saving enough. And that's a concern. Second is a lack of access to employer-sponsored plans. So you want everybody who is in the workplace to be able to have access to a 401(k), and yet when you look at this, particularly with smaller businesses, a lot of people just don't have access, don't have the chance to save. 401(k)s are great because remember the employer typically puts a match in for you so it's not just your money that's tax advantaged, but you also, unlike an IRA, you get the employer to put a match in and usually to help you with your decisions in terms of what kind of investments you make with that 401(k). Third, we found that, particularly with lower-income Americans, there was a real issue with the amount of savings. And who needs money more in retirement than lower-income Americans because that’s where they don't have other savings to help them through retirement. 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 IRA and they stop working. They think this is great and they take the lump sum. Maybe spend some of that, maybe buy the boat, maybe go on a nice vacation and then suddenly find, ‘Oh my gosh, I’m living longer and longer, I hadn't expected to be in my 90s and still here,’ and yet that's the trend right now is people are living longer so we have to ensure that there is longer lifetime savings as people are living longer and healthier lives.
“Eighteen months working with all of these groups on the outside, we came up with 57 different provisions to address these four areas, and how do we do it? First, for those who have saved too little to set aside more for their retirement. So for seniors, people who are over age 60 years old, we have a special catchup contribution. So if you're over age 60 years old, under our legislation, you have the opportunity to be able to put more aside in your retirement plan. That's important. Contribution limits go from $6,000 to $10,000 for those workers over the age of 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 retirees over the age of 55 have zero retirement nest egg saved. Some may have a public pension, for instance, but still when you add that in, 30 percent have neither retirement savings or any kind of pension benefits that they are going to get in the future. You have a lot of people out there with nothing so this will help with regard to those individuals.
“We also say with regard to this first issue, it's not just being able to get a catchup contribution, what we tell employers, ‘Hey, if you set up a plan that allows you to match six percent of pay rather than three percent of pay, we will give you a break from some of the onerous retirement rules in a safe harbor,’ and that will encourage more of those employers do it and it also provides a tax credit for those employers to offer these safe harbor plans. So it’s going to give more generous benefits to employees. That’s something we think is appropriate again to help people save more for retirement.
“It also helps employees who are struggling to save for retirement and pay off student loan debt. So this is people who are saying, ‘I would love to save for retirement, how can I do that when I have this student loan debt to pay off?’ In Ohio, by the way, the average debt of someone coming out of a college or university is $27,000. So a lot of people don’t have the disposable income to say, ‘I want to save for retirement and for college debt.’ Well, 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’s a good way to help people pay off their debt, individual paying off their debt, the employer putting a match in for the same amount. It’s also a good way to attract employees. If you're a business owner out there you will like this because it will give you an advantage in the marketplace saying, ‘Come work with me, we'll help you on the student debt.’
“The second issue we talked about for today is small businesses. This is important because we know that is where most people who don't have access to retirement plans work. They work in smaller businesses. Bigger businesses tend to offer retirement plans and pretty generous ones. But 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 an employer-sponsored plan, but it drops to only 49 percent for small businesses. So if you work for small businesses, it's less than half. And, by the way, only 39 percent if you're a part-time worker.
“The bill takes a number of important steps to help small businesses offer 401(k)s and other retirement plans for their workers. It increases the current law tax credit that's already out there but it improves it, increases it for small businesses for starting a new retirement plan from $500 to as much as $5,000. It simplifies the top-heavy rules for small business plans to reduce the cost of enrolling new employees. And it establishes a new three-year $500 per year tax credit for small businesses that automatically reenroll all the participants in the plan at least once every three years. This is one of the issues out there. If you don't do auto enrollment, in other words, and opt in, unless you opt out you're not going to get the participation rate we want. This is legislation, by the way, Senator Cardin and I promoted back in the 2006 legislation which said to employers, ‘You can do an auto enrollment’ and the participation rate went from 75 percent to about 95 percent with this auto enrollment, particularly for younger people if you're just told, hey unless you do something you're going to automatically be enrolled in this 401(k), it encourages them to get into retirement savings. All of that is to help these small businesses. We think it's going to make a big difference.
“Third, one of the big problems we face is the planned participation rates for low-income workers, again, are well below what they are for others. This says expand access to retirement savings plans for hardworking lower-income Americans. The way we do that, and Senator Cardin is the expert on this, but it is to ensure that those people who are low-income, have the ability to get into a retirement plan with a match. And that would incentivize them to get in. Only 22 percent of low-income workers participate in a retirement plan today. Again, these are people who need those savings the most. So it expands what is called the Saver’s Credit. It expands the income thresholds to give more Americans access to increase 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 account. I think that's important because you don't want this money wasted. You don't want it used for other purposes, so-called leakage in retirement accounts. This goes right into the retirement account. We talked about that only 39 percent have access to a plan but again only 22 percent participate. So this is important.
“It also expands the eligibility of 401(k)s to include part-time workers. Now this is very important to the AARP and others out there who are looking at these part-time numbers and saying, ‘Oh my gosh, 22 percent participate, that's it.’ We've got to do more there. So it allows part-time workers who complete between 500 and 1,000 hours of service for two consecutive years to be able to join in with a 401(k). These provisions are all designed to help, particularly low-income Americans, to be able to start building that nest egg for retirement.
“Finally, 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. A study by Northwestern Mutual last year found that 66 percent of Americans believe they'll outlive their retirement savings. Two-thirds of Americans are saying I’m going to live longer than my retirement savings. And by the way they're probably right. People are living longer and healthier lives and running out of their retirement savings, it’s a major concern.
“We have a number of initiatives to provide more flexibility to seniors in their retirement years. Specifically, the bill increases the age for the required minimum distribution from age 70 and a half which it is now, to 72 and to 75. 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 that there is a rule that says you've got to start taking your money out of retirement at 70 and a half. If you're like my father who was working full time at 70 and a half, it was a head scratcher. Why should I take my money out of my 401(k) when I’m still working? I ran into a guy last week in Ohio who said the same thing. This makes no sense. So what we’ve said is, we're going to kick it up to 75 years old but also, if you have less than $100,000 in your retirement account, you're not subject to the minimum requirement rules at all. This is a great relief to a lot of seniors who are trying to save that money for retirement, don't want to pull it out, because although they may work until age 75, they still know they're going to have maybe another 20 years to live and they want to make sure they have that retirement savings in there.
“I'm excited about all these provisions. This last one that I’m hearing a lot from, here’s Tom Kermode from Geauga County, Ohio said, ‘Relief from required distributions would be very helpful. 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 70 and a half instead of remaining financially independent?’ You're darned, right, Tom, thanks for your letter.
“The bill provides help also in other ways. It reduces the current penalty for failing to take the required distributions from 50 percent of the short-fall amount to 25 percent in most cases and as low as 10 percent in some cases, if you self-correct the error. Finally, the legislation in order to help those who are in retirement encourages the use of qualifying longevity annuity contracts. QLACs. What is that? That is a retirement plan that provides annual payments to individuals who outlive their life expectancy. You think of an annuity or periodic payment, when you retire instead of taking a lump sum, you have one of these contracts where you're able to ensure that you're not going to outlive your retirement savings. They are an affordable option for a lot of Americans who are trying to hedge the risk of outlasting their savings. We should encourage those more and that's what we do in our legislation.
“Again, these are all common-sense reforms. They deal with all four of these challenges that we've seen as we've looked at the retirement system based on a lot of input from a lot of people. My hope is we'll be able to get this done. Our coalition includes the American Benefits Council, the AARP, the U.S. Chamber of Commerce, Ensured Retirement Institute, Fidelity, Nationwide, T. Rowe Price, Vanguard, the Women's Institute for Secure Retirement, International Association of Firefighters, American Council of Life Insurers, the ERISA Industry Committee – just to name a few. There are a lot more too.
“We’ve had the opportunity to work together for a couple of decades now on these issues. I'm glad that we are taking this next step, again, to provide additional options for people to be able to save for their retirement and have more peace of mind in retirement.”