The budget reconciliation proposal set for debate in the House Ways and Means Committee this week contains three game-changing retirement measures: a mandate requiring small business employers to offer employees a workplace savings plan, a required automatic enrollment feature and a required lifetime income distribution or annuity option.
The provision, called “Subtitle B,” will require that small business employers offer their employees a workplace savings plan, either in the form of an Individual Retirement Account (IRA) arrangement or a retirement plan, such as a 401(k), 403(b) or SIMPLE IRA.
The measure also requires that auto IRA and retirement plans offer participants with account balances of $200,000 or more an option to take a distribution of at least 50% of their vested account balance in the form of a protected lifetime income solution or annuity.
House Ways and Means Committee Chairman Richard E. Neal (D-Mass.) announced yesterday that the committee will begin consideration of legislation that includes the proposals, as well as paid leave and health-care requirements and an expansion of Medicare benefits. Hearings begin tomorrow and continue Friday.
“This is our historic opportunity to support working families and ensure our economy is stronger, more inclusive, and more resilient for generations to come,” Neal said in statement.
“Requiring automatic contribution plans offering participants a chance to choose a lifetime income distribution option, rather than just providing for a lump-sum distribution of retirement savings, particularly helps workers who may have difficulties allocating their savings across their retirement years,” Wayne Chopus, president and CEO of the Insured Retirement Institute (IRI), said in a letter to Neal on Tuesday. The trade group represents the issuers of 95% of the annuities in the U.S.
“This is especially true for retirees who live longer than anticipated," he continued. "A protected lifetime income solution, such as an annuity, ensures a steady income for however long a participant might live. It offers valuable protection and can help retirees solve how they time the spending down of their savings."
Recent research by IRI showed that seven in 10 workers between the ages of 40 and 45 said they are very or somewhat likely to allocate a portion of their plan to annuities; 87% believe it is important that the income from savings is protected for life; and 26% indicated that lifetime income is the most important retirement investment trait.