Editor’s Note: Roger W. Ferguson Jr. is president and chief executive officer of TIAA, a leading financial services provider that sells annuities and other retirement products. The opinions expressed in this commentary are his own.
Retirement may seem like a distant reality for many Americans. Unfortunately, pandemic-related job losses and benefit reductions derailed retirement savings for millions of workers, and many others were forced to take money out of retirement accounts to deal with immediate financial strains. Millions more – including many part-time workers and small business employees – still don’t have access to employer sponsored retirement accounts, like 401(k) or 403(b) plans, potentially putting them in financial jeopardy come their senior years.
Even for people who haven’t suffered job or income losses during the pandemic, retirement security remains a challenge. About 30% of US adults say they worry every day or almost every day about their ability to save for retirement, according to a recent Pew survey.
And according to a recent survey fielded by the Census Bureau, more than 3.1 million Americans age 55 or older plan to apply for Social Security benefits earlier than they once thought because of the pandemic. This will result in a permanent cut in their lifetime monthly benefits, which is a high price pay to pay for older people who may already be struggling to make ends meet.
Two new bipartisan bills introduced in the last session of Congress, and expected to be reintroduced this year, can help workers attain a more secure retirement. The Securing a Strong Retirement Act, introduced in the House, and the Retirement Security and Savings Act, introduced in the Senate, include reforms and innovations aimed at addressing the retirement-plan access and savings gaps and helping people turn their savings into retirement income.
One of the most interesting proposals contained in both pieces of legislation would allow employers to essentially match an employee’s student loan repayments with contributions to the employee’s retirement plan. When an employee pays down student debt, their employer could make a matching contribution into the employee’s retirement plan using the same match formula used for employees’ regular retirement plan contributions.
This holds tremendous promise for addressing two major financial challenges at once – the sometimes-crushing student debt burdening many workers in their 20s and 30s and the need to start saving for retirement as early as possible. Rather than delaying retirement savings while paying off student loans, younger workers would be able to reduce debt while building savings. And employers would be able to make their employee benefit plans more competitive while improving their employees’ retirement security.
The new House and Senate retirement reform proposals would also help individuals at different stages of their careers save more for retirement, including through increased catch-up contributions for older employees and an expanded and refundable saver’s credit to help lower- and middle-income workers. The saver’s credit is currently capped at $1,000 a year and phased out quickly once income reaches more than $66,000 for a married couple. The new legislation would increase the maximum credit to $1,500 and phase it out at higher income levels, allowing more people to take advantage of it. In addition, there are proposals that would make lifetime income products, such as annuities, more readily available.
Congress took major steps forward on retirement security with the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act at the end of 2019. That reform package made it easier for small employers to band together to offer retirement plans to their employees. It also requires employers to make plans available to long-time, part-time employees sooner by lowering the requirements one would have to meet for being eligible. And it raised the age at which people are required to start taking money out of their retirement accounts from 70 ½ to 72, allowing their savings to continue growing.
Perhaps most importantly, the SECURE Act helped plan sponsors and participants address the need for guaranteed lifetime income. Retirement plans now must provide statements showing participants how their savings will translate into retirement income – and plan participants will have more options for directing a portion of their savings to a fixed annuity, which can turn lifelong savings into a guaranteed “paycheck” in retirement.
The SECURE Act was passed with nearly unanimous support, demonstrating the deep commitment on both sides of the aisle to helping Americans improve their retirement security. The Securing a Strong Retirement Act and the Retirement Security and Savings Act should be taken up and passed to continue the progress we have made in bolstering retirement security.
The immediate health and economic concerns arising from the pandemic must, of course, remain top priorities for President Biden and members of Congress. But the pandemic has heightened financial challenges on multiple fronts, including retirement security. Congress should move forward now on these common sense, bipartisan retirement reforms that will allow Americans to emerge from the current crisis with more tools for building a dignified and financially secure retirement.
