Democratic Plan Would Require Businesses to Offer Retirement Plans

Summary

WSJ Your Money Briefing – Episode Summary

Episode Title: Democratic Plan Would Require Businesses to Offer Retirement Plans
Date: September 13, 2021
Host: J.R. Whalen
Guest: Ann Tergeson (WSJ Retirement Reporter)

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Overview

This episode explores a new Democratic legislative proposal that would require most businesses without existing employee retirement savings programs to start offering them. The discussion breaks down the details of the plan, its implications for workers and small businesses, potential costs and penalties, and the likelihood of the proposal becoming law.

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Key Discussion Points & Insights

Legislative Background and Goals

• The proposal is part of a larger $3.5 trillion package covering health care, education, and climate (00:36, 03:56).
• It targets the 33% of private sector American workers without access to a workplace retirement savings program (01:04, 03:32).
• The objective is to expand retirement savings opportunities, particularly for employees of smaller businesses.

How the Plan Would Work (02:33 – 03:28)

• Who is covered?
  • Companies with six or more employees that do not already offer a plan (02:33).
• How does it operate?
  • Workers would be automatically enrolled in a Roth IRA.
  • Employers must withhold 6% of an employee's pay and direct it into the Roth IRA.
  • Employees can opt out entirely or adjust the contribution rate (03:28).
  • Quoting Ann Tergeson:

    "The employee can opt out. ... It's entirely in the employee's hands, in the end, as to whether they end up remaining in the IRA." (02:44)

Status of the Proposal (03:48 – 05:05)

• Current Stage:
  • Passed by the House Ways and Means Committee; awaiting House vote.
• Timeline & Process:
  • House vote could occur within the next month.
  • Faces further hurdles in the Senate, where moderate Democrats may seek to reduce the scale of the bill.
  • Quote:

    "So it's quite a ways from becoming law." – Ann Tergeson (05:05)

Response from Small Businesses (05:05 – 05:45)

• Many small businesses oppose the plan, viewing it as burdensome with added costs and administrative requirements.
  • Ann Tergeson reports,

    "They feel it would be onerous and that it would involve cost and time to the small business owners who would prefer to spend their time running their businesses, I'm sure." (05:14)

Support Measures for Businesses (05:45 – 06:33)

• States like California, Oregon, and Illinois have enacted similar programs, offering some precedent.
• The proposal includes a $500 annual tax credit available to businesses for up to four years to help offset costs.
• Businesses using automated payroll services find compliance less burdensome than those managing payroll manually.

Penalties for Non-Compliance (06:33 – 06:49)

• Non-compliant companies would be subject to an excise tax/penalty:
  • $10/day per employee, up to three months.
• Ann explains:

  "You can call it a penalty of $10 a day per employee for a maximum of three months, which, you know, would be imposed on a business that didn't comply." (06:35)

Roth IRA vs. 401(k) Plan Option (06:49 – 07:25)

• Employers remain free to establish traditional 401(k) plans if preferred.
• Most small businesses avoid 401(k) plans due to their complexity, while the proposed auto-IRA system is intended to be simpler and less administratively taxing.
• Quote:

  "There's no requirement here that a company has to use the auto IRA if they want to do the 401(k). They can." – Ann Tergeson (06:56)

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Notable Quotes & Memorable Moments

• On employee autonomy:

  "It's entirely in the employee's hands, in the end, as to whether they end up remaining in the IRA." – Ann Tergeson (03:28)

• On the uncertainty of the proposal’s future:

  "So it's quite a ways from becoming law." – Ann Tergeson (05:05)

• On small business sentiment:

  "They feel it would be onerous and that it would involve cost and time to the small business owners who would prefer to spend their time running their businesses." – Ann Tergeson (05:14)

• On compliance penalties:

  "A penalty of $10 a day per employee for a maximum of three months...would be imposed on a business that didn't comply." – Ann Tergeson (06:35)

• On 401(k) plan flexibility:

  "There's no requirement here that a company has to use the auto IRA if they want to do the 401(k). They can." – Ann Tergeson (06:56)

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Timeline of Important Segments

• [00:36] – Introduction of the proposal’s main goal and context
• [02:32] – Ann Tergeson explains proposal details
• [03:48] – Status of the bill and legislative process
• [05:05] – Small business response
• [05:50] – Comparison to state-level plans and support measures
• [06:33] – Non-compliance penalties
• [06:56] – Option to establish a traditional 401(k) plan

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Summary Takeaways

This episode of "Your Money Briefing" breaks down a Democratic legislative proposal requiring most businesses without current retirement plans to enroll employees in automatic Roth IRAs. While intended to help millions more Americans save for retirement, especially those working for small businesses, the plan has met resistance from some business owners concerned about costs and administration. The bill is still early in the legislative process, facing an uncertain future. Notably, the episode highlights both employee flexibility in participation and government efforts to offset business costs, while showcasing the ongoing political and practical debates about America’s retirement savings landscape.

Transcript

[Small Business Owner]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Retail Industry Advocate]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Retail Industry Advocate]

they need while increasing megastore profits. They deserve it, don't they?

[Electronic Payments Coalition Representative]

Tell Congress stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.

[J.R. Whalen]

Here's your money briefing for Monday, September 13th. I'm J.R. whalen for the Wall Street Journal. We've talked several times before on the show about companies taking steps to encourage employees to put money away for retirement. But not all companies offer an employee savings plan. House Democrats aim to address that. They've included a provision in their $3.5 trillion health care, education and climate bill that would require most businesses without an employee retirement savings program to start one.

[Ann Tergeson]

So there's probably about 33% of private sector workers in the United States do not have access to a workplace retirement savings program. So the goal here is to provide them with access to some way to save for retirement.

[J.R. Whalen]

So how likely is the plan to go through and what would it mean for workers and small businesses? We'll check in with our retirement reporter Ann Tergeson after the break.

[Small Business Owner]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Retail Industry Advocate]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Retail Industry Advocate]

they need while increasing megastore profits. They deserve it, don't they?

[Electronic Payments Coalition Representative]

Tell Congress stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.

[J.R. Whalen]

Putting money away in a retirement savings plan like a company sponsored 401k can mean having a nest egg to help you make ends meet once you leave the workforce. But millions of workers haven't saved enough or saved at all. WSJ retirement reporter Ann Tergison has been tracking a proposal by House Democrats that would require even many small companies to offer retirement plans for their employees. And. And she's here with the details. Anne, thanks for coming on the show.

[Ann Tergeson]

Thanks very much.

[J.R. Whalen]

So, Anne, this proposal, it covers companies with six or more employees and under the current framework, it would go into effect in 2023. But how exactly would it work for companies and workers?

[Ann Tergeson]

The proposal, which could be modified if it passes. But the way it stands now, is the proposal calls for companies that don't offer retirement plans to automatically enroll employees in the default would be in a Roth IRA and to withhold 6% of the person's pay and put that money into the Roth IRA for them. Now, as with any form of automatic enrollment, the employee can opt out. The employee can either decide, you know what, I can't afford to save 6%, but I can afford 3%, so I'll go down to 3%, or they can decide just not to save. So it's entirely in the employee's hands in the end as to whether they end up remaining in the ira.

[J.R. Whalen]

And in terms of employees, who is the savings plan geared toward?

[Ann Tergeson]

So there's probably about 33% of private sector workers in the United States do not have access to a workplace retirement savings program. So the goal here is to provide them with access to some way to save for retirement.

[J.R. Whalen]

Now, we've noted that this is a proposal. So where do things stand with it now, and how far are we from it potentially actually becoming law?

[Ann Tergeson]

So this is something that has been a favored piece of legislation for Richard Neal, who's the chairman of the House Ways and Means Committee, a very powerful committee in Congress. And so he's been pushing this for years, and he put it into the $3.5 trillion package that Democrats are seeking to pass. That's a very broad bill, and it contains many, many different provisions. So this is one of the provisions that's in that. What happened on Thursday is that the House Ways Committee passed this retirement subsection of that larger $3.5 trillion bill. And so it will be included in the measure that the House considers when they go to vote on that. Democratic leadership in the House has expressed a desire to vote on that within the next month. And then it would have to go to the Senate side, and it would have to be taken up there and included in their version of the bill. And then ultimately, there are moderate Democrats in both the House and the Senate who want to pare the bill down so it may not survive that process. So it's quite a ways from becoming law.

[J.R. Whalen]

You know, Ann, you've been in touch with small business leaders, many of whom are just getting back on their feet after dealing with the effects of the pandemic. What are they saying about this proposal?

[Ann Tergeson]

So this proposal would apply to all businesses that currently don't offer retirement plans. But, you know, many of those businesses are in the sort of small business category. And an organization that represents small businesses that I contacted, I think they have about 300,000 members nationwide. You know, they're opposed to this. They feel it would be onerous and that it would involve cost and time to the small business owners who would prefer to spend their time running their businesses, I'm sure.

[J.R. Whalen]

Okay, so are there any provisions to help businesses offset what this plan might cost them?

[Ann Tergeson]

You know, we've seen similar plans in effect in states including California, Oregon and Illinois. And there are other states that have passed similar measures. And when I talk to small business owners in those states that have had to, you know, go through the process of setting up these automatic enrollment IRAs, some of them do say it's. It's onerous. Particularly business owners who do their payroll themselves and do it in a manual basis. Others who outsource their payroll or who use, you know, automated programs, they say it's not so onerous. So within the proposed legislation, There is a $500 annual tax credit that would be available to businesses for up to four years.

[J.R. Whalen]

And what happens if a company doesn't comply?

[Ann Tergeson]

So the proposal calls for what they're calling an excise tax. You can call it a penalty of up to. Of $10 a day per employee for a maximum of three months, which, you know, would be imposed on a business that didn't comply.

[J.R. Whalen]

Now, you mentioned a Roth IRA before. But if a company were to launch a 401k plan under this proposal, how would that work?

[Ann Tergeson]

Employers are always free to start their own retirement plans. And so a company that decided to launch its own 401k plan could just go ahead and do that. There's no requirement here that a company has to use the auto IRA if they want to do the 401k. They can. It's just that a lot of small companies shy away from offering 401s because that can involve more time and complexity than the auto ira, which is a pretty simple vehicle.

[J.R. Whalen]

All right, that's Wall Street Journal reporter Ann Tergeson. Anne, it's been terrific having you with us on the show.

[Ann Tergeson]

Thanks very much.

[J.R. Whalen]

And that's your Money briefing. I'm J.R. whalen for the Wall Street Journal.

[Small Business Owner]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Retail Industry Advocate]

Inflation is killing me. But who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See, banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Retail Industry Advocate]

they need while increasing megastore profits. They deserve it, don't they?

[Electronic Payments Coalition Representative]

Tell Congress, stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.