Financial Reports and Analysis

Big Changes on the Horizon for 401(k) Plans

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by Alli Thomas

Jul 24, 2018

Last week, a bipartisan group of senators introduced a set of four new bills aimed at encouraging workers to save for retirement and to beef up their emergency savings.

How could these potential changes affect you? Here is a summary of the proposals:

  • The first bill, known as the Small Business Employees Retirement Enhancement Act, would allow small businesses within different industries to pool their retirement plans to ease each employer’s administrative burden and reduce the costs of maintaining a standalone plan, while still offering the benefits of an employer-sponsored retirement plan to their workers.

This could be a great solution for employees of smaller companies because, according to 2012 research by the U.S. Census Bureau, 35% of private-sector workers over age 22 work for employers that do not offer any sort of retirement plan at all.

  • The second bill, called the Retirement Security Flexibility Act, would encourage wider adoption of automatic 401(k) plan enrollment and contribution rate step-ups in plans that don’t currently offer these features.

Both features take advantage of employee inertia and have been shown to improve plan participation; but many small businesses that sponsor a retirement plan don’t currently offer these features.

  • The third bill, entitled the Strengthening Financial Security Through Short-Term Savings Act (what a mouthful!), would allow employers to automatically enroll their employees in an emergency savings account.

This proposal addresses Americans’ alarming lack of savings that we discussed just last month.

  • The final bill, called the Refund to Rainy Day Savings Act, would give workers the option to direct their tax refunds to savings accounts.

Most financial professionals are big proponents of the concept of paying yourself first. Many people tend to let their tax refunds burn a hole through their pockets—enabling workers to automatically set aside some of that windfall in a savings account is a worthwhile idea.

In addition to these proposed bills, Republicans are also working on the so-called “Tax Reform 2.0,” which would permanently extend the individual tax-rate cuts that were passed last December. The new legislation could also include additional retirement and emergency savings features.

According to the head of the House’s Ways and Means Committee, both proposals are expected to be voted on by early September. We will be monitoring the bills’ progress and sharing updates here.

In the meantime, we’re happy to discuss this or any of your other retirement savings concerns, so please reach out to us!

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Alli Thomas

Alli Thomas has worked in the financial services industry for nearly 20 years, with a focus on retirement-related investing. She began her career as a FINRA-licensed participant-services call-center associate at Vanguard, and then moved to Principal Financial Group, where she worked closely with employers, assisting with retirement plan set-up and design, selecting appropriate plan investment offerings, and maximizing employee participation through targeted education campaigns and enrollment meetings. Alli has also worked as a qualified 401(k) administrator and registered investment advisor for several small investment firms. She now writes about all things investment- and finance-related, leveraging her extensive experience and passion for retirement planning to help investors make well-informed financial decisions.

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