Published
July 05, 2022
U.S. Chamber of Commerce
Statement for the Record on the Enhancing American Retirement Now Act
July 5, 2022
The U.S. Chamber of Commerce (Chamber) is pleased to submit this statement for the record to the U.S. Senate Committee on Finance (Committee) for the June 22, 2022 hearing on the Enhancing American Retirement Now Act (EARN Act). The Chamber applauds the Committee’s bipartisan efforts that went into the EARN Act. The EARN Act is a crucial step forward in finalizing retirement legislation during this Congress. As reflected in our statement, the Chamber wants to ensure that any final legislation makes it easier for employers to voluntarily offer retirement benefits to their workers, while not compromising employers’ ability to offer competitive wages and other benefits.
Automatic enrollment
The EARN Act contains a provision that provides a nonrefundable income tax credit for small employers (no more than 100 employees) that automatically enroll their employees in a qualified employer plan. The Chamber supports this provision because it will encourage small employers to establish and maintain plans with automatic enrollment features.
During the Earn Act hearing, Senator Sheldon Whitehouse (D-RI) proposed including mandatory automatic enrollment provisions similar to section 101 of the Securing a Strong Retirement Act of 2021 (SSRA), which would require all newly established plans that cover more than 10 employees to include an autoenrollment feature of not less than 3 and not more than 10 percent with the auto escalation of at least one percent.
The Chamber supports allowing employers to voluntarily include automatic enrollment as a plan design feature. However, we do not support mandating that all employers include it. Although a recent Vanguard survey found that more than half of respondents offered automatic enrollment,[1] there are legitimate reasons why an employer may choose not to include autoenrollment, such as high turnover or cost. Second, we are concerned that SSRA would create an odd dichotomy with existing plans not being required to include autoenrollment, but new plans would be, which could discourage the formation of new plans. Third, for plans subject to the mandate, it would likely reduce overall employer contributions.
As the EARN Act makes its way through the legislative process, we urge the Senate to keep the current provisions that provide a credit for offering automatic enrollment to make it easier for small employers to offer automatic enrollment rather than forcing all employers to include it.
Contribution limit for SIMPLE IRAs
The proposal increases the elective deferral amount limits an employee may contribute to a SIMPLE IRA or SIMPLE 401(k) plan to $16,500 for employers with no more than 25 employees that also elect to increase the match or nonelective contributions. The proposal also requires the trustee or issuer of a SIMPLE plan to provide the Secretary a copy of the plan document at the time the arrangement is established (or, in the case of existing arrangements, no later than December 31, 2024).
It is unclear why the Secretary would need a copy of the plan document. If the Secretary would need it, we propose that the final legislation provide that, upon request, the employer provide the Secretary a copy of the plan document.
Penalty-free withdrawals from retirement plans for individuals in cases of domestic abuse
This section would waive the 10% penalty for early distributions to domestic abuse victims, capped at $10,000 (or 50% of the account balance if less). Final legislation should clarify that a plan sponsor may rely on the participant’s certification that the distribution is because of domestic abuse.
Retirement savings lost and found
This section creates a “lost and found” within Treasury that would maintain a database of contact information for employer-sponsored retirement plans. It also requires that account balances under $1,000 would be required to be deposited with Treasury if the plan sponsor is unable to locate a participant. Final legislation should create a fiduciary safe harbor for such deposits. Also, it should allow a fiduciary to make one transfer each plan year of all accounts.
Exception to penalty on early distributions from qualified plans for individuals with a terminal illness
This section provides an exception to the 10% penalty on early withdrawals for individuals who are terminally ill. Final legislation should clarify that a plan sponsor may rely on the participant’s certification that the participant is terminally ill.
Long term care contracts purchased with retirement account distributions
This section would permit retirement plans to distribute up to $2,500 per year without the 10 percent early withdrawal penalty to pay premiums for long term care that provides high quality coverage. The summary states that high quality coverage describes a policy that provides “meaningful financial assistance in the event that an insured needs home-based assistance or nursing home care.” This definition may be very difficult to administer. Instead, final legislation should provide that the withdrawal is to pay for premiums for a qualified long-term care insurance contract as defined under Internal Revenue Code Section 7702B. Furthermore, final legislation should provide that a plan sponsor may rely on an employee’s certification that the distribution is for premiums for such long-term care.
Catch-up contributions only as Roth contributions
We share Senator Ben Cardin’s (D-MD) concern, expressed during the hearing, of how the legislation would be paid for. In large part the EARN Act would be paid for by requiring, not allowing, catch-up contributions to be made on a Roth basis. As noted by Mr. Thomas Barthold, Chief of Staff, Joint Committee on Taxation during the June 22, 2022 hearing, individuals decide to make their contributions either on a pre-tax basis or on a Roth basis based on the individual’s economic situation. By mandating that all catch-up contributions be made on a Roth basis, the proposal is removing this choice, and it may diminish the value of catch-up contributions for some older workers.[2] This could be especially harmful during this current labor shortage because many employers are having difficulty hiring and retaining older workers.
This also could have a negative impact on employers who allow for catch up contributions, but not for Roth contributions. Nearly all employers offer catch-up contributions. However, only 77 percent of plans offer Roth contributions.[3] This provision would force those employers either to add Roth contributions or not allow catch up contributions. Unfortunately, the easier solution would be not to offer catch-up contributions.
Thank you for considering our comments.
Sincerely,
Chantel Sheaks
Vice President, Retirement Policy
U.S. Chamber of Commerce
[1] “How America Saves”, p. 23, June 2022 available at https://institutional.vanguard.com/content/dam/inst/vanguard-has/insights-pdfs/22_TL_HAS_FullReport_2022.pdf. The survey found that 56% of all plans offered automatic enrollment. However, automatic enrollment was much more common in plans for larger employers, with 74% of plans with more than 5000 employees providing automatic enrollment, but only 34% of employers with less than 500 employees providing automatic enrollment.
[2] According to the Vanguard survey, usage of Roth contributions tends to decline with age. See “How American Saves” at 40.
[3] “How America Saves” at 39, 40.
About the authors
Chantel Sheaks
Chantel Sheaks develops, promotes, and publicizes the Chamber’s policy on retirement plans, nonqualified deferred compensation, and Social Security.
