Legislative Spotlight: Automatic Retirement Plan Act
posted by Fisher 401(k) January 3, 2022
It's estimated half of working-age American households risk being unable to maintain their standard of living after retiring. One solution to ensure as many workers as possible are investing in retirement plans is to institute automatic enrollment into those plans for all eligible employees. For several years Congress has been considering a bill to make saving for retirement automatic, and a new bill – the Automatic Retirement Plan Act (ARPA) – is built to tackle this issue.
The Automatic Retirement Plan Act
To help close the retirement gap, ARPA (also known as House Resolution 4523), will try to make saving for retirement even simpler by requiring most employers to offer their workers a retirement plan and make enrollment in those plans automatic. Here are a few ways the bill plans to accomplish this:
The proposal would require all employers with at least six employees as of 1/1/2023 to maintain a retirement savings plan. This could mean up to 625,000 more companies with little or no expertise in retirement plan administration would become plan sponsors.
What's the impact on you? As a business owner, this means you could be required to sponsor a retirement plan for your employees, if you don't already. Setting up a retirement plan comes with many options. We recommend working with a trusted advisor who can help navigate the pros and cons of each option, and help you establish a plan tailored to the goals of your business.
Auto-enrollment at 6% contribution rate
The legislation would create a new type of deferral-only safe harbor 401(k) plan in which employees would automatically be enrolled and would not be subject to nondiscrimination testing. The bill would set the automatic enrollment contribution rate at 6% of the participant's salary—automatically increasing 1% each year until their contribution reaches 10% of their salary.
What's the impact on you? You might consider adding an automatic enrollment feature to your company retirement plan. Automatic enrollment means employees are automatically enrolled in the plan when they become eligible (unless they opt out). Automatic enrollment comes with some administrative duties you may not be used to. Having a good communication plan with your employees is a great way to make this process smooth.
50% government match
ARPA would replace the current Saver's Credit with a 50% government match, up to $1,000 per year. It would also make the credit fully refundable and require it be contributed directly to a retirement plan—essentially acting as a matching contribution for savers.
What's the impact on you? This additional match may increase employee participation in the plan. This is a great thing because increased employee participation can help:
- Put employees on track to afford a comfortable retirement
- Provide more favorable compliance testing results
- Allow highly compensated employees to contribute more into the plan
To learn more about how the Automatic Retirement Plan Act and other proposed legislation, download our Legislative Overview Chart. This handy reference tool outlines key provisions of recently proposed legislation and how they could impact 401(k) plans, sponsors, and participants.