President Trump’s Retirement Proposal

By: Tony Roda, Williams & Jensen

During his State of the Union speech on February 24, President Trump discussed retirement security and the need to strengthen the financial future of Americans. He proposed a new retirement savings plan for workers who don’t have access to an employer-provided plan.

The President stated that, "Half of all of working Americans still do not have access to a retirement plan with matching contributions from an employer. To remedy this gross disparity, I'm announcing that next year my administration will give these oft-forgotten American workers, great people, the people that built our country, access to the same type of retirement plan offered to every federal worker. We will match your contribution with up to $1,000 each year, as we ensure that all Americans can profit from a rising stock market.” 

President Trump is correct. According to the Pew Charitable Trusts, there are some 56 million working Americans without access to employer-provided retirement plans. Some states have moved to fill this coverage gap. According to the Georgetown Center for Retirement Initiatives, 20 states have created state-facilitated, retirement plans for private sector workers; 17 of the 20 are operational; and the other three will be open soon. Fifteen of those plans are auto-IRAs. Thus far, the state-facilitated plans cover 375,337 employers and have aggregate assets under management of $2.85 billion. Yet, while this is a significant contribution to closing the coverage gap, the problem persists.

Let’s hearken back to the 2014 State of the Union address when President Barack Obama announced that he would direct the Treasury Department to develop myRA. Throughout 2014, the Treasury Department developed the framework for the program, including creating a new Treasury savings bond to serve as the underlying investment for the accounts. Final regulations for the new savings accounts were issued on December 15, 2014.

myRA was designed as a starter retirement account to help bridge the coverage gap for many of the same workers President Trump is trying to help today. It was designed to appeal to risk-averse, first-time retirement savers, by providing a principal-protected investment. Savers could contribute to their myRA accounts as little as a few dollars up to $5,500 per year ($6,500 per year for individuals who had attained age 50 or were older). Savers also could withdraw money they put into their myRA accounts tax-free and without penalty at any time. However, in 2017, President Trump halted the myRA program, citing high costs and low uptake.

Now fast forward to today where we see President Trump revisiting the retirement savings coverage gap. The attractiveness of an approach similar to the myRA model is that it may be possible to create the new retirement savings accounts and the federal governmental match simply by regulation and through existing federal law. This is being explored at the White House and Treasury Department.

A mechanism through which the federal match may be delivered could be the existing saver’s match tax provision. The saver’s match was created by the SECURE Act 2.0 and will become effective in 2027. The saver’s match will provide a federal match to eligible persons of 50 percent of retirement contributions up to $2,000 for individuals ($1,000 match) or $4,000 for those married filing jointly ($2,000 match). The credit begins to phase out between $20,501 in annual income for individuals and is fully phased out at $35,500; the phase-out range for those married filing jointly is $41,001 to $71,000 of annual income.

However, there is a challenge to the immediate use of the saver’s match to deliver the federal match called for by President Trump. While contributions to a Roth retirement account will make an individual eligible for the match, by law the match may not be paid to a Roth account. The match may be made only to a traditional (pre-tax) retirement account. The saver’s match “mismatch” is known to lawmakers and tax staff on Capitol Hill and to officials at the Treasury Department. It is likely to be fixed in the next retirement legislation.

Many questions beyond the structure of the saver’s match need to be resolved as the President’s proposal gains more detail. Policy considerations include eligibility, enrollment, contribution limits, allowable investments, emergency withdrawals, and the interplay with social safety net programs, such as the asset limitation rules under the Supplemental Security Income program.

Please be assured that NCPERS will keep its members apprised of significant developments on the President’s retirement proposal and other related pension and tax legislative and regulatory matters. Find the latest on legislative and regulatory issues here (login required).

Tony Roda is a partner at the Washington, D.C. law and lobbying firm Williams & Jensen, where he specializes in legislative, regulatory, and fiduciary matters affecting state and local pension plans. He represents the National Conference on Public Employee Retirement Systems and state-wide, county, and municipal pension plans in California, Colorado, Georgia, Kentucky, Nebraska, Ohio, Tennessee, and Texas. Tony has an undergraduate degree in government and politics from the University of Maryland, J.D. from the Catholic University of America, and LL.M (tax law) from the Georgetown University Law Center.