Senate Dems Unveil Plan To Expand 401k Retirement Savings Opportunities For Americans – As GOP Sets To Unveil Tax Proposal That Would Harm Millions Of Working Americans, Dems Urge Republicans To Expand Retirement Opportunities For Middle Class

Senate Democrats Unveil Plan That Would Protect & Expand 401(k) Contribution Limits, Offer Incentives For Employers To Match Retirement Contributions For Workers, And Provide A Savings Option For Americans Who Do Not Have 401(k) Plans By Contrast, The GOP And Trump Administration Have Ducked Every Opportunity To Promise Americans They Would Protect And Strengthen 401(k) Plans - Instead, Soon-To-Be-Released Republican Plan May Actively Hurt Americans’ Ability To Save For Retirement Senate Dem

October 31, 2017

Washington, D.C. – U.S. Senate Democratic Leader Charles E. Schumer, U.S. Senator Ron Wyden (D-OR), Ranking Member on the Senate Committee on Finance, U.S. Senator Debbie Stabenow (D-MI), member of the Senate Committee on Finance and Chair of the Senate Democratic Policy and Communications Committee, U.S. Senator Maria Cantwell (D-WA), member of the Senate Committee on Finance, and U.S. Senator Sheldon Whitehouse (D-RI), member of the Senate Committee on the Budget, today unveiled their plan to protect and expand retirement savings opportunities for the American people. By contrast, the Trump Administration and many Republican members have failed to assure Americans that they will protect their 401(k) plans, which would actively harm millions of Americans’ ability to save for retirement. The Senate Democrats unveiled a plan that would not only protect and expand 401(k) contribution limits, but also offer stronger incentives for employers to match retirement contributions for their workers and provide a savings option for those Americans who do not have the opportunity to save at work through the convenience of a payroll deduction plan, such as a 401(k) plan. The Senators said every American has a right to retirement security, and any attempt to cut savings for hardworking Americans to pay for a tax giveaway to the wealthy is no plan at all.

During the press conference, the Senate Democrats laid out the three critical tenets of their proposal. They include:

Protecting and expanding 401(k) contribution limits

  • The Senate Democratic proposal protects the freedom of American families to save for retirement on a pre-tax basis.  For 2018, workers are allowed to save up to $18,500 in 401(k) accounts.  If they are age 50 or older, they may save an extra $6,000. 
  • The proposal will also expand that extra savings opportunity to all Americans so that everyone is eligible to save up to $24,500 in 401(k) accounts, along with the flexibility to do this saving on a pre-tax basis. Individuals age 50 or older will be able to save an extra $6,000 for a total of $30,500 per year.
  • This is in contrast to the soon to-be-unveiled Republican tax plan which is rumored to limit pre-tax 401(k) savings to a paltry $2400 per year, and to use the budget gimmickry of “new” taxes paid on 401(k) contributions to finance tax cuts for millionaires and corporations.  Since pre-tax treatment for 401(k) contributions is only a tax deferral (because distributions from 401(k) plans at retirement are taxable), these new “taxes” on contributions are not new revenue at all, but merely a shift of taxes currently paid outside the 10-year budget window to inside that window.  Using funny money to pay for tax cuts will lead to revenue shortfalls in the future; and will be used by Republicans as an excuse to cut funding for vital programs.

Offering tax credits for employers to match worker contributions

  • The Senate Democratic proposal will offer incentives for employers to offer matching contributions on their 401(k) plans. 
  • Matching contributions are an employer-contribution that is contingent on a worker electing to contribute his or her earnings to the 401(k) plan.  Under current law, these matching contributions are made on a pre-tax basis. 
  • Democrats will protect the pretax treatment of matching contributions and incentivize employers to offer matching contributions with a tax credit equal to a percentage of the employer’s match. Democrats suggest a tax credit equal to 25 percent of the employer’s match, but are open to discussing the specific level with Republicans.

Providing auto-IRAs as a savings option for Americans who do not have employer-sponsored retirement plans like 401(k)s

  • Approximately half of American workers in the private sector under age 65 do not have the opportunity to save at work through the convenience of an employer-sponsored retirement plan, such as through a 401(k) plan.  GAO has found that regardless of income level, the majority of workers will save for retirement if given the opportunity to do so.
  • Democrats will provide a savings option for these Americans who are left out: Under an auto-IRA program, employers who do not offer a retirement savings plan at work would automatically enroll their workers in payroll deduction contributions to an IRA.  Contributions would be set at a default rate that would escalate after the initial year of participation.  Workers will have the freedom to opt-out of the program and make no contributions, or to select a different savings rate, and they will have the freedom to choose whether the IRA is a traditional pre-tax IRA or a Roth after-tax IRA.