Senators to Propose Retirement Bill Tackling Emergency Savings

Two senators have released a bipartisan retirement bill addressing workers’ financial security for the short term and the long haul.   

Just prior to the Memorial Day recess, Senators Patty Murray, D-Washington, and Richard Burr, R-North Carolina, the chairwoman and ranking member, respectively, of the Senate Committee on Health, Education, Labor and Pensions, released a discussion draft of the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg—termed the RISE & SHINE Act. Lawmakers incorporated the Emergency Savings Act of 2022 into the draft, which Senators Cory Booker, D-New Jersey, and Todd Young, R-Indiana, introduced earlier this week.

The Booker-Young bill is supported by the ERISA Industry Committee, Bipartisan Policy Center and American Benefits Council, among other retirement industry organizations.

The RISE & SHINE Act includes several provisions to bolster short-term financial security and enhance retirement savings. Murray and Burr said in a statement that the bill builds on legislation passed in the House of Representatives, the Securing a Strong Retirement Act of 2021, called SECURE 2.0; the Retirement Improvement and Savings Act, called the RISE Act; and the Retirement Security and Savings Act.

The senators said they plan to introduce and mark up final legislation in the coming weeks.

Emergency Savings Section

The bill section addressing short-term financial security provides the option for employers to offer workers retirement-linked emergency savings accounts. Plan sponsors could automatically enroll employees in these accounts at no more than 3% of their salary, with the accounts capped at $2,500 or lower per year, as set by the employer.

The contributions are after-tax and treated as elective deferrals for retirement matching contribution purposes. Employee contributions above the cap would transfer to retirement plan savings.

According to a report by the Federal Reserve, almost half of Americans would struggle to cover an unexpected $400 expense. Many are forced to withdraw from retirement savings to cover emergency expenses. Senator Murray said that many families remain financially vulnerable, and many of her constituents had to “raid their retirement savings to pay for groceries, pay their mortgage, and just to make ends meet” because of the economic impacts of the COVID-19 pandemic, she explained.

A study from the Consumer Financial Protection Bureau found that nearly 60% of retirement account participants who lack emergency savings tapped their long-term retirement savings, versus 9% of those who had accumulated one month of savings for emergencies. A report from the Defined Contribution Institutional Investment Association and Commonwealth shows that emergency savings should be distinct from retirement funds and that well-designed programs can effectively buffer against participants making early withdrawals from retirement savings.

Recordkeepers and retirement plan services providers have focused their efforts on helping workers to build up emergency savings. Transamerica is the latest provider to add separate emergency savings accounts—highlighting the need for emergency saving options—which can help balance short-term and long-term financial goals.

Retirement Plan Provisions

Murray said that COVID-19’s economic impacts have been even more severe for people without a retirement plan.

“We need to put families back on solid financial footing and use the tools we know work to help people put more money in their savings and retirement accounts—which is why this bipartisan package is so important,” Murray said.

Survey data from retirement plan provider ShareBuilder 401k shows that 74% of small businesses don’t offer a retirement plan to employees. The 2021 Congressional Research Service report, “Worker Participation in Employer-Sponsored Pensions: Data in Brief,” shows that 70% of all U.S. workers have access to an employer-sponsored retirement plan and 56% of U.S. workers participate.

The Murray-Burr bill makes changes to both defined benefit and defined contribution plans, which are grouped into several sections. Among the changes are provisions that would enable 403(b) retirement plans to participate in multiple employer plans and pooled employer plans; direct the Department of Labor to update its regulations for benchmarking investments, including target-date funds, that include a mix of asset classes; and shortening the time requirement for part-time workers to participate in an employer-sponsored plan to two years from three.

Another section of the bill outlines defined contribution notice and disclosure recommendations, while another section concerns retirement plan modernization, as it would allow plan sponsors, every three years, to prompt participants who opt out of contributing to reconsider. The bill would also make amendments to plans offered by multiple employers. In addition, it contains provisions specific to defined benefit plans as well as various retirement enhancements relating to plan amendments.  

The ERISA Industry Committee backed the Booker-Young bill in a letter of support to lawmakers. Andrew Banducci, senior vice president of retirement and compensation policy at ERIC, says the retirement industry lobbyist for large employers has supported many of the provisions included in the Murray-Burr bill but is not ready to endorse it.   

“ERIC has advocated for a number of important priorities contained in the discussion draft of the RISE & SHINE Act,” he says. “We strongly support proposals to help workers save for both retirement and emergencies, assist employers in continuing to provide retiree health plans and streamline disclosure requirements and other administrative burdens. We are reviewing the details of the package with our members and will provide feedback to the HELP committee next week.”