U.S. lawmakers proposed a measure that could swell the coffers of fund managers like Fidelity, Charles Schwab and Vanguard by automatically enrolling eligible employees eligible in 401(k) plans.
The Securing a Strong Retirement Act of 2020 was introduced on Tuesday by Richard Neal (D-Mass.) and Kevin Brady (R-Texas), the top Democrat and Republican on the House Ways and Means Committee, to encourage and incentivize Americans to save for retirement.
“COVID-19 has only exacerbated our nation’s existing retirement crisis, further compromising Americans’ long-term financial security,” said Neal, who chairs the committee. “In addition to meeting workers’ and families’ most pressing, immediate needs, we must also take steps to ensure their well-being further down the road.”
According to a study cited in a summary of the bill, auto-enrollment in retirement plans brought 401(k) participation from 19% to 75% by short-tenure Latinx employees. A study by Ariel Aon-Hewitt found that auto-enrollment nearly erases the racial gap in retirement plan participation rates, and dramatically raises enrollment among younger, lower-paid employees.
The measure could bring in many new retirement accounts to providers such as Charles Schwab, Nationwide, Bank of America, T. Rowe Price and Vanguard.
The bill includes numerous other provisions, including one that would relax regulations on including exchange-traded funds in individual variable annuities. Existing regulations were written before ETFs existed, according to the bill summary, and are currently ill-fitted to the investment option.
The measure also allows small employers to pool together to seek more favorable terms on 403(b) plans, and increases the maximum “catch-up” contribution for employees between 50 and 60 to $10,000 from $6,500.
The Securities Industry and Financial Markets Association praised the legislation.
“In particular, we are pleased the bill includes provisions that will incentivize small business to offer retirement plans, enable older Americans to save more and hold on to their savings longer, and allow matching contributions for student loan payments,” said Kenneth Bentsen, CEO of the trade group for U.S. broker-dealers, investment banks and asset managers.
The law is a follow-up to the SECURE Act, authored by the same two legislators, which was signed into law in December 2019. That law allowed 401(k) plans to offer annuities, opened up retirement plan eligibility for some part-time workers, sought to lower costs for small businesses to establish retirement plans and contained other measures aimed at preventing older Americans from outliving their assets.
Many of the most substantial reforms to Social Security, which provides retirement benefits to older Americans, happened in the 1960s, when American life expectancy was around eight years below current levels.