Posted on Apr 12, 2022
On March 30, 2022, Senators John Barrasso (R-WY) and Tom Carper (D-DE) introduced the bi-partisan Starter-K Act in the Senate. This bill allows employers who do not offer a qualified retirement plan to their workers to establish a starter 401(k) deferral-only arrangement for plan years beginning after 2022. The bill defines the starter 401(k) deferral-only arrangement as any cash or deferred arrangement that meets specified automatic deferral requirements, contribution limitations, and notice requirements.
The bill’s intent is to decrease the costs and streamline the regulations for starter retirement plans so that small businesses and start-up companies can provide retirement plans for employees. According to the Bureau of Labor Statistics, just 53 percent of companies with 1 to 49 employees in 2021 offered a retirement plan to their workers, while 92 percent of large employers with 500 or more employees offered retirement plans.
If passed by Congress, the bill would allow employees of participating companies to save up to $6,000 per year indexed to inflation, with catch-up contributions for individuals age 50 and older. Employers will not be required to provide matching contributions, eligible employees will be automatically enrolled at a minimum default of 3 percent of pay, and reporting requirements will be simplified.
Overall, the bill will help to level the playing field for small businesses when it comes to attracting talent. Besides salary, employees highly value benefits, including health care and retirement plans. Given that few employers these days offer traditional pension plans, most employees need to plan carefully for retirement and start saving as early as possible in their careers. A 2021 Bankrate survey found that 52 percent of Americans say they are behind on their retirement savings, and 20 percent took early withdrawals from their plans since 2020 when the pandemic began and many people lost their jobs. While Social Security provides an income stream for many retirees, it was never meant to be a sole means of support and typically replaces only 40% of an average earner’s income.
Individuals interested in commenting to their representatives about the Starter-K Act of 2022 can find their state representatives here.
This material is provided for informational purposes only, and is not intended as authoritative guidance, legal advice, or assurance of compliance with state and federal regulations.Back to Blogs Helpful Resource Links