Retirement plan record keepers are working behind-the-scenes on the logistics of the anticipated “saver’s match,” a dramatic new financial incentive that policy experts hope will spur more low- and middle-income workers to save for retirement.
Beginning in 2027, low-wage earners contributing to employer-sponsored retirement savings plans or individual retirement accounts will be eligible for a matching contribution of up to $1,000 from Uncle Sam. The funds will be deposited directly into their retirement savings accounts.
“We very much support this and are very much engaged in making sure that it works efficiently because we want the system to work for all participants regardless of their income level,” said Tim Rouse, executive director at the SPARK Institute, a trade group representing retirement plan record keepers. “If this is successful in getting lower paid individuals to contribute to their retirement plan and save for retirement, then it's going to be a positive for our industry and for society in general.”
Last year, SPARK organized two large meetings with record keepers and other industry stakeholders to brainstorm how to accomplish the logistically complex task of getting contributions from the federal government into savers' retirement accounts. They explored improving tax forms, using advanced technologies like blockchain and even enhancing the automated clearinghouse, or ACH, system to make fund transfers more efficient, Rouse said.
“We had probably 40 or 50 people engaged from across the industry all thinking about how best to make this work,” he said.
Implementing the saver’s match won’t be easy.
Record keepers and other industry stakeholders will need to work with the Treasury Department to figure out how to transfer money from the Treasury to an individual’s account within a retirement plan, a difficult process given that retirement plan accounts are not individual retail accounts but rather institutional arrangements established by employers for the benefit of their employees.
“The new saver’s match program will create an unprecedented program that will require new levels of coordination among individual taxpayers, plan sponsors, retirement plan record keepers, trustees, custodians, insurers, tax preparers, and the federal government,” Rouse wrote in a comment letter to the Internal Revenue Service on Nov. 4.
Some 22 million low- and middle-income Americans would benefit from the saver’s match, according to estimates from the Employee Benefit Research Institute. Under the program, retirement savers would receive a 50% match on up to $2,000 they contribute to their accounts until they hit the maximum modified adjusted gross income, which varies by tax filing status.
For individuals making less than $20,500, that translates into a $1,000 match if they manage to set aside $2,000. For couples earning less than $41,000, the match can go as high as $2,000 if they put in $4,000.
Wide support, complex logistics
While the saver’s match — which was created under the SECURE 2.0 Act — has wide industry support, employers are waiting on the sidelines to hear from record keepers on how the incentive would work logistically.
Only 11% of plan sponsors, for example, say they are definitely adding — or likely to add — the saver’s match to their plans, according to a recent survey from Alight Solutions.
The hesitation stems from the novelty of the incentive and uncertainty over logistics, said Rob Austin, head of thought leadership at Alight.
“There’s no doubt that people are interested in this. They just want to make sure that how it’s going to work is going to be smooth and streamlined and secure,” he said.
Rouse agreed. “They are waiting for the green light from my members,” he said, referring to retirement plan sponsors.
First and foremost, record keepers are urging the Treasury to make the process as simple and efficient as possible.
“This is not a lot of money for our industry, so our biggest concern is that it be very smooth and very efficient,” Rouse said. “If the process for accepting payments and correcting mistakes is too difficult, we are concerned that plans and IRA providers may choose not to participate in the program.”
SPARK is pushing for the creation of a saver’s match “tracking number” that eligible individuals would use to designate the retirement plan or individual retirement account that should receive the match. Savers would contact their retirement plan or IRA provider for their tracking number, which they would then use when filing their tax returns.
“We believe that the use of a saver’s match tracking number system would be one very effective way to prevent the disbursement of saver’s match contributions to an ineligible account,” Rouse said.
SPARK sees the Treasury sending the match deposits directly to plan custodians or record keepers, entities that would then transfer the funds into the appropriate individual accounts. SPARK, however, is urging the Treasury and the IRS to give plan custodians and record keepers a chance to preview a list of the anticipated match contributions in advance.
The plan custodians do not want to accept matches that “do not have a proper home,” Rouse said, referring to savers who are no longer in their plans or who gave incorrect tracking numbers.
“To send back a $165 check to Treasury is going to be so costly,” he said.
SPARK is also encouraging the Treasury to participate in an application programming interface or “API” with the retirement plan service providers to verify the accounts for match recipients.
“We have APIs throughout the industry between custodians and payroll and TPAs and payroll companies and record keepers. We think APIs would need to be built with Treasury,” he said, adding that SPARK would work with Treasury to make sure the APIs are as secure as possible.
In addition, SPARK supports using blockchain technology because it would make it simpler for the government and industry to know who has an account and where it is, while helping with cybersecurity concerns, Rouse said.
Despite all the work that needs to get done, Rouse is optimistic that record keepers will be ready by Jan. 1, 2027, the date that the saver’s match goes into effect.
“We process millions and millions of payrolls every year, and we do it extremely efficiently today,” Rouse said. “I'm hoping that through the years of experience we have in processing these types of contributions, that we can make this work.”
