Democrats' $3.5T reconciliation bill could overhaul retirement savings: Here's how
The proposal includes 2 items that would boost retirement savings for many workers if adopted
FOX Business' Edward Lawrence on Senate Democrats unveiling their $3.5 trillion reconciliation bill and New York governor Andrew Cuomo resigning after public pressure.
The sweeping, multitrillion-dollar spending plan that House Democrats are currently crafting may include a provision to bolster retirement savings for millions of Americans.
The tax-writing Ways and Means Committee on Tuesday unveiled legislative proposals for portions of the reconciliation bill, among them a plan to strengthen retirement savings. The committee began the mark up process on the measures – which span from universal paid family and medical leave to child care – on Thursday and will continue on Friday, Chairman Richard Neal, D-Mass., said in a statement.
"The Ways and Means Committee will put an end to the idea that only some workers are worthy of ‘perks’ like paid leave, child care, and assistance in saving for retirement, and finally commit to investments that make these supports fixtures of the American workplace," Neal said.
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The proposal includes two items that would boost retirement savings for many workers if adopted.
The first plan would require employers that don't currently offer employer-sponsored retirement plans to automatically enroll their employees in individual retirement accounts such as an IRA or other plans similar to a 401(k).
In 2020, an estimated one-third of private industry workers didn’t have access to an employer-sponsored retirement plan, according to data from the Bureau of Labor Statistics. Part-time workers, as well as service industry employees and lower-income Americans, were the least likely to have access to a retirement plan through their employer.
Democrats are also seeking to make the saver's credit refundable, enabling workers without any income tax liability to receive the benefit in the form of a contribution to their retirement account, according to a copy of the proposal.
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The saver's credit is a tax credit that's intended to promote retirement savings among low- and moderate-income workers. It can reduce an eligible taxpayer's federal income taxes when they save in a qualified retirement plan.
In 2021, the maximum credit is worth $1,000 for individuals and $2,000 for married couples filing jointly, although it phases out for higher earners. To qualify for the credit, individuals must have an adjusted gross income of $32,500 or less. The income threshold for married couples is $65,000.
Because the credit is non-refundable, eligible taxpayers are able to use it to effectively reduce their tax bill to zero – but it cannot provide them with a tax refund.
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The spending plan, which Democrats are planning to pass on a party-line basis using a procedural tool known as reconciliation, will dramatically expand the government-funded safety net if it becomes law. The measure includes billions to expand health care, combat climate change and establish free community college, among other provisions. It would be paid for by a slew of new taxes on wealthy Americans and corporations.