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December 09, 2022 03:59 PM

Lawmakers float bipartisan bill to create TSP-like plan for workers without 401(k)s

Brian Croce
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    A bipartisan bill has been introduced in the House and Senate that would grant workers without an employer-sponsored retirement plan access to a federal program similar to the $720 billion Thrift Savings Plan, the retirement system for 6.7 million federal employees and members of the uniformed services.

    Under the Retirement Savings for Americans Act, which was introduced Thursday by Sen. John Hickenlooper, D-Colo.; Sen. Thom Tillis, R-N.C.; Rep. Terri Sewell, D-Ala.; and Rep. Lloyd Smucker, R-Pa., full- and part-time workers who lack access to an employer-sponsored retirement plan would be eligible for an account. Those workers would be automatically enrolled at 3% of their income and could choose to increase or decrease their withholding or opt out entirely at any time. Independent workers, including gig workers, would also be eligible, a news release noted.

    Related Article
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    Moreover, low- and middle-income workers would be eligible for a 1% automatic contribution (as long as they remain employed) and up to a 4% matching contribution via a refundable federal tax credit. Accounts would remain attached to workers throughout their lifetimes and the assets could be passed down to future generations.

    Much like the TSP, participants would be given a menu of simple, low-fee investment options to choose from, including lifecycle funds tied to a worker's estimated retirement date, or index funds made of stocks and bonds, according to the news release.

    The president would appoint five members to a newly created American Worker Retirement Investment Board, which would be tasked with administering the program as well as hiring staff and asset managers.

    "Roughly 40 million Americans lack access to an employer-sponsored retirement plan, which represents a significant roadblock to achieving financial security for their retirement," Mr. Tillis said in the news release. "The Retirement Savings for Americans Act tackles this real problem by establishing a pathway for savings for Americans lacking retirement options."

    The bill closely follows a March 2021 paper published by the Economic Innovation Group, a bipartisan public policy organization, that argued the TSP could be a model to build wealth for low-income workers.

    "This bill is tackling the most serious gaps in the U.S. retirement system," said John Lettieri, president and CEO of the Economic Innovation Group. "Ones that have prevented tens of millions of workers from being able to participate in the way that more affluent workers do and build a nest egg that will give them a stable retirement and give them something to pass on to future generations."

    With only a few weeks left in the congressional session, the bill is more of a messaging vehicle, Mr. Lettieri noted. "This is a way of planting the marker … to generate interest and attention and to generate feedback from a variety of stakeholders," he said. "Think of this as a dress rehearsal for a more substantial effort in the new Congress."

    Mr. Lettieri said the bill is not in conflict with a bipartisan retirement security package known as SECURE 2.0 that lawmakers may attach to a year-end spending bill in the coming weeks.

    "SECURE 2.0 has a lot of good things in it, it's a worthy and thoughtful attempt at improving the retirement system, but it doesn't solve for those fundamental gaps that this bill would solve for," Mr. Lettieri said. "I think it'd be great to see both of them move forward in due course."

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