Retirement help may be coming for small-business employees and gig workers



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A new proposal in Congress would expand retirement-savings access for employees of small businesses, as well as gig workers and other independent contractors.

The bill would require employers with more than 10 workers that do not offer a retirement plan to automatically enroll their employees in individual retirement accounts or other automatic-contribution plans or arrangements, like 401(k) plans. The proposal, known as the Automatic IRA Act of 2024, was introduced by Rep. Richard Neal, a Massachusetts Democrat.

The costs of the requirement for businesses are expected to be low, since employers would be eligible for the existing startup tax credit if they adopt a plan or the proposed $500 three-year automatic IRA tax credit if they adopt an automatic IRA.

Nearly half of America’s workers are employed by companies that do not offer a traditional pension or retirement-savings plan, with about two-thirds of those workers at companies with 10 or more employees, according to the Insured Retirement Institute (IRI), which represents annuity providers and has supported the proposed measure.

The proposal comes as several states have created IRA programs to try to build retirement savings for workers who lack plans through their jobs. More than 800,000 workers across seven states — California, Illinois, Oregon, Connecticut, Maryland, Colorado and Virginia — have amassed $1 billion in retirement savings through the plans.

Read: State-run IRAs hit $1 billion in assets in 2023. Will you be contributing to one this year?

“It builds on proven policy solutions: 19 states have implemented state-based automatic IRA-for-all programs for private-sector employees. A federal program would help ensure workers’ pathway to retirement security no longer depends on their employer or state,”  Thasunda Brown Duckett, president and chief executive of financial services company TIAA, said in a letter of support for the proposal.

Under the proposed legislation, a default percentage of an employee’s paycheck would be diverted to the employee’s automatic IRA account. The minimum default contribution for the first year is 6%. Employees can raise or lower their contribution percentage or can opt out of the program entirely. Employees can choose to contribute to either a traditional IRA or Roth IRA; if no choice is made, the default is a Roth IRA. 

The proposal would help more than just those working for small businesses. It would expand opportunities to save for the 73.3 million American workers who participate in the gig economy. 

The legislation aims for the automatic IRAs to be made available to individuals who provide services that do not constitute employment. This would cover gig workers, self-employed individuals, freelance workers, independent contractors and other non-employees.

The proposal also allows for a lifetime income option. Employers must offer employees with at least a $200,000 vested retirement-account balance with the option to take a distribution of up to 50% of savings to purchase a lifetime income solution. 

The legislation, if passed, would apply to plan years beginning after 2026.

“The bill is a solution that will provide workers, particularly those employed by small businesses, more opportunities to save for retirement during their working years. It also will make protected, guaranteed lifetime income solutions that can provide sustainable income throughout an individual’s retirement years more readily available to help individuals ensure their long-term retirement security,” the IRI said in a letter of support.

“The bill would significantly reduce the anxiety many workers and retirees feel about running out of savings during retirement by requiring the plan to offer its participants a lifetime income solution as a distribution option,” the IRI said.

According to IRI, older workers are interested in having protected lifetime income solutions, such as annuities, included in defined-contribution retirement plans. In fact, 70% of workers aged 40 to 45 years old said they are very or somewhat likely to allocate a portion of retirement-plan assets to annuities. A total of 87% said they believe it is important that the income from savings is protected for life.



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