Democrats' retirement plan mandate is 'pretty heavy-handed,' expert says
Part of the $ 3.5 trillion reconciliation package going through Congress would make company pension plans mandatory, largely regardless of company size. But that could put a strain on smaller employers, according to one expert.
"That's a pretty clumsy mandate," Gordon Gray, financial policy director for the American Action Forum, recently told Yahoo Finance Live (video above). "Encouraging more people with access to participate in these plans is a worthwhile goal, but I am concerned about the burden on employers - especially with the pandemic."
Gray said the provision would require employers with only six employees to create company retirement plans and automatically enroll their employees. Companies would receive a tax credit to offset additional expenses.
(Photo: Getty Creative)
If passed, retirement savings plans would be available to the majority of working Americans, encouraging more people to participate actively in their financial futures.
"The motivation is solid and well received, which means we know there are millions of workers who have access to retirement programs in their workplace, but not everyone actually uses them," said Gray.
Before the pandemic, 79% of American workers had an employer offering a retirement plan, but only 41% of workers are contributing to a plan, according to the census.
(Photo: Getty Creative)
The financial responsibility also rests with the workers, he explained. The automatic enrollment provision also requires workers to contribute 6% of their income to the pension plan.
"That could be a significant burden for low-income Americans," Gray said. "That would really put a strain on their disposable income."
This is where a second provision of the plan comes into play. The bill also extends the SAVERS Credit by being refunded so that those who don't owe taxes are also entitled to the benefit.
Retirement Saver Credit, more commonly known as Retirement Contribution Credit, offers either 50%, 20%, or 10% credit depending on the applicant's gross adjusted income, but cannot exceed $ 66,000.
"There's a reason that when you hire workers who otherwise don't contribute to their retirement, it follows to give a little help, especially to low-income Americans," he said.
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Stephanie is a reporter for Yahoo Money and Cashay, a new personal finance website. Follow her on Twitter @SJAsymkos.
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