Sen. Bill Cassidy, R-La., chair of the Senate Health, Education, Labor and Pensions Committee, proposed removing barriers so more independent workers join retirement plans, according to a white paper released April 23.
“Providing independent workers access to products already allowed under ERISA and encouraging them to save would do a great deal to close the retirement savings coverage gap, allowing workers to provide for their families while preventing them from having to unnecessarily delay retirement,” Cassidy wrote in the white paper, which also proposed expanding affordable healthcare options for independent workers.
Cassidy suggests that two types of retirement plans — pooled employer plans, or PEPs, and simplified employee pension IRAs, or SEP IRAs — are ideal for independent workers.
Congress created PEPs in the SECURE Act of 2019 “to allow small businesses and sole proprietors to band together under a single plan,” while SEP IRAs “are similar to typical IRAs but with higher contribution limits and portability, making them another ideal potential option for independent workers,” Cassidy wrote.
“Congress should consider allowing banks to create escrow or suspension accounts to address the irregular income challenges faced by independent workers,” Cassidy proposed, suggesting that contracting companies deposit part of independent workers’ earnings into these accounts over the course of the year, “with funds transferred to a SEP before tax filing, and any excess moved to regular bank accounts.”
In addition, “to improve financial trust, companies and trade associations could set up PEPs and SEPs on behalf of independent workers, automatically enroll them without requiring contributions, and offer workers’ advice without creating an employment relationship and compromising their independent status,” the senator wrote.
Cassidy proposes a series of statutory adjustments to encourage saving and lower barriers to entry, including allowing companies to auto-enroll independent workers at 2% of base pay, with flexible contribution options and removing “unnecessary regulations, such as fiduciary responsibilities for self-directed accounts, audit requirements, and nondiscrimination tests.”
He also suggests facilitating data sharing across payroll providers “to streamline retirement contributions for independent workers working for multiple companies,” and suggests Congress could “consider exempting SEP and PEP accountholders working more than 32 hours per week from requirements to remove money from their accounts by a certain age.”
