House committee advances automatic retirement plan proposal

The House Ways and Means Committee in a 22-20 vote advanced a measure Thursday to require employers that don’t offer retirement plans to automatically enroll their employees in individual retirement accounts or 401(k)-type plans.

The vote was part of a markup where the committee considered a series of legislative proposals under a budget reconciliation process. The markup is part of Democrats’ efforts to pass a $3.5 trillion social spending plan aimed at addressing climate change, expanding Medicare, paid family and medical leave and child care options, and establishing universal prekindergarten, among other items.

If signed into law, the measure would require many employers to offer a 401(k) or IRA, with exceptions for governments, churches and companies with five or fewer employees or less than two years in business. It does not cover employees under 21 and any employee can opt out.

Employer contributions would not be required, but failure to offer a plan would incur an excise tax of $10 a day per employee for up to three months.

The measure would also require plans to offer participants with more than $200,000 in their accounts an option to take a distribution of at least 50% of their vested account balance in the form of a protected lifetime income solution.

Also included in the measure is a provision to make the saver’s credit refundable so that people without any income tax liability are eligible to receive the benefit in the form of a contribution to their retirement account.

The auto-enrollment provision advanced Thursday is based on a bill — the Automatic Retirement Plan Act — introduced in December 2017 by Chairman Richard Neal, D-Mass.

Establishing automatic IRAs and enhancing the saver’s credit would dramatically expand retirement savings, Mr. Neal said during the markup. He cited data from the American Retirement Association, which found that implementing such proposals could add up to $7.3 trillion in additional retirement savings over a 10-year period and create more than 63 million new retirement savers.

“Now is the time to confront this issue head-on — the longer we wait, the worse the problem becomes, and millions more Americans will find themselves in untenable circumstances in their later years,” Mr. Neal said.

Republicans on the committee, wary of imposing requirements on business owners, opposed the measure. Rep. Kevin Brady, R-Texas, the committee’s ranking member, called it a partisan approach. “Main Street now faces an onerous new mandate from Washington and a tax penalty if you don’t comply,” he said.

Retirement security is typically one of the few bipartisan issues left in Washington. Congress in 2019 passed a major retirement package, the Setting Every Community up for Retirement Enhancement Act, or SECURE Act. In May, Mr. Neal and Mr. Brady introduced the Securing a Strong Retirement Act, also referred to as SECURE Act 2.0, which includes dozens of provisions aimed at boosting retirement security.

“I believe that rather than taking a partisan approach that I think damages our ability in the future to work together and find common ground, I think we do so much better working together, and this committee has proven it time and time again,” Mr. Brady said.

Mr. Neal said that it’s not his intention to derail efforts on passing SECURE 2.0 and at a later point in the markup he guaranteed it would be signed into law by the end of the year.

Using the reconciliation process means Democrats need only a simple majority to pass the social spending bill in the Senate instead of the usual 60 votes. Republicans have widely criticized the $3.5 trillion package, and none are expected to support it in either chamber.