Senate and House Democrats Propose Novel Retirement Program With Required Employer Contributions

Democratic lawmakers in the U.S. Senate and House of Representatives have jointly introduced the “Saving for the Future Act,” which is legislation modeled on the United Kingdom’s National Employment Savings Trust (NEST) program. The bill is sponsored in the Senate by Sens. Amy Klobuchar (D-MN) and Chris Coons (D-RI), and in the House by Reps. Lisa Blunt Rochester (D-PA), Scott Peters (D-CA), and Lucy McBath (D-GA).

This legislation includes the following provisions.

  • Automatic employee enrollment at a deferral rate of 4 percent, automatic deferral increase to as much as 10 percent, optional employee deferral choice or opt-out
  • First $2,500 would reside in an “UP-Savings” account for nonretirement, nonroutine expenses (e.g., medical event, unemployment, accident, etc.), and amounts above in an “UP-Retirement” account (employee may elect to have all contributions paid to UP-Retirement account)
  • Mandatory employer contributions of 50 cents per hour worked for two years, 60 cents per hour thereafter (employers with 10 or fewer employees could opt out of employer contributions, and their employees to receive a tax credit)
  • Optional employer contributions above the minimum paid to UP account or to another retirement plan
  • Maximum employee deferrals at one-half the 401(k)/403(b)/457(b) annual amount (e.g., $9,500 without catch-up for 2019)
  • Distribution options include lifetime income, term-certain payments, or percentage of balance payments (lump sum does not appear available)
  • Employer tax credit of 50 percent of minimum contributions paid to accounts of the first 15 full-time equivalent employees, 25 percent of contributions paid to accounts of next 15 (no credit for contributions above 30 employees), and tax-exempt employers eligible for a refund
  • Oversight by a board similar to the Federal Thrift Investment Board (governs federal Thrift Savings Plan program), but administration to be contracted-out to the private sector
  • Investments to include “products that allow[s] for diversification across stocks and bonds, including low-fee index funds,” defaults to “fully diversified fund” or target-date type fund
  • Portability when changing jobs to be achieved by tying a worker’s balance to the board/private sector administered program, not to an employer plan’s trust

This legislation’s concept and features differ markedly from the current U.S. defined contribution plan structure. That, along with the fact that it contrasts with pending bills that build on the current savings framework and that the legislation has no Republican sponsors, make it likely that the Saving for the Future Act will face an uphill climb to achieve acceptance