Bill Seeks Per-Work-Hour Contribution to Workers’ Retirement Plans

Many employers in the United States would be required to contribute 50 cents per hour to an employee’s retirement plan, with a boost to 60 cents after two years and then continued increases with wage growth, under the stipulations of a recently introduced bill before the House of Representatives.

The Saving for the Future Act (House of Representatives Bill 5887) was proposed on Oct. 31 by California Democratic Reps. Scott Peters and Norma Torres. It was subsequently referred to the House Committee on Ways and Means, as well as the Committee on Education and Workforce.

The new bill is one of several recent federal legislative proposals aimed at strengthening retirement security and building on the momentum of the SECURE 2.0 Act of 2022, which has significantly changed retirement account rules over the past few years to allow for expanded automatic enrollment and increased catch-up contribution limits for certain ages.

H.R. 5887 has generated early support from organizations like AARP and the National Urban League. Also, both Republican and Democratic legislators have expressed general support for improved retirement security, given studies have shown approximately 40% of Americans have no retirement plan or pension. However, the bill will likely face an uphill climb to passage given:

• It is not bipartisan (no Republicans signed on as a cosponsor);
• The current Republican majority in both the House and Senate;
• The two parties have different viewpoints on the paths to retirement security; and,
• Republicans outnumber Democrats on the House Ways and Means Committee, 26-19, and on the House Education and Workforce Committee, 21-16.

If collaboration is not possible, it would meet the same fate as similar legislation introduced in April 2019 (during the first administration of President Donald Trump) by Peters, Lucy McBath (D-Georgia) and Lisa Blunt Rochester (D-Delaware) in the House (H.R. 2120) and Christopher Coons (D-Delaware) and Amy Klobuchar (D-Minnesota) in the Senate (Senate Bill 1053). Neither of these bills advanced out of committee.

Key Facets of H.R. 5887

If passage is possible, the bill’s stipulations are both noteworthy and impactful. The details include:

• Employers with 10 or more employees would be required to provide defined funds per hour worked to an employer contribution savings plan, which could include existing plans such as a 401(k).
• Employees without access to an employer-sponsored 401(k) would be able to save through federally provided “UP Accounts,” which are modeled after the Thrift Savings Plan for federal workers. UP Accounts would have low fees, could be transferred from job to job, and would be tailored to the employee’s age and savings needs.
• Employees would be automatically enrolled to contribute 4% of their pay, with the option to opt out or adjust their contribution level.
• Businesses would receive tax credits to help offset their contribution costs. Small businesses with 10 or fewer employees are exempt from the employer contribution mandate, but their workers would receive access to UP Accounts and an individual tax credit for their contributions.
• The cost of the tax credits in the bill would be offset by increasing the top corporate tax rate (from 21% to 23%) and the top individual income tax rate (from 37% to 39.6%).

“Today’s cost-of-living crisis means most Americans aren’t able to put enough money away for retirement or protect their families from unexpected emergency costs,” Peters said. “The Saving for the Future Act would help hardworking Americans build wealth through employer contribution plans. ... This legislation expands proven models of employer-provided savings and invests in portable benefits, so Americans can save for a more secure and prosperous future.”

Questions and Answers on the Bill

Additional H.R. 5887 information was provided in a “questions and answers” document on Rep. Peters’ website. Some salient entries included:

Question: How will this affect 401(k) plans or defined benefit pensions?

Answer: “Existing retirement plans will be allowed to continue, and the Saving for the Future Act ensures that employers continue to use them. The maximum annual employee contribution to an UP Account is set at half the level of allowable contributions to 401(k) plans. That means employers that offer a 401(k) plan can offer a more generous tax deferral to their workers. However, employers without a plan at all will have the opportunity to offer a basic, effective savings product without burden.”

Question: Does the bill affect Social Security?

Answer: “No. The Saving for the Future Act makes no changes to Social Security. ... Most Americans believe that it’s vital to have additional income on top of Social Security when they retire, and that is what The Saving for the Future Act is designed to provide.”

Question: Are part-time workers covered under the bill?

Answer: “Yes. … Those working part-time at an employer with 10 or more workers would be assured a retirement account and the minimum employer contribution.”

Question: Are independent contractors covered under the bill?

Answer: “There is an ongoing debate over which workers must be considered employees. That debate is beyond the scope of this bill. [Under the bill,] independent contractors have the right to participate in UP Accounts, and their employers are required to provide them notice of their right to an account and information on how to enroll in an account and claim the individual credit.”

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