Smucker urges Congress to help low-income workers save for retirement, wins AARP support

U.S. Rep. Lloyd Smucker’s bipartisan bill to help low-income earners save for retirement has won the support of AARP, the nonprofit that bills itself as the largest advocacy organization for Americans ages 50 and over.

Smucker’s proposal would target low-income workers who don’t have access to an employer-sponsored retirement plan. These workers would be automatically enrolled in a federal-sponsored plan that takes 3% of their income and puts it into a savings account for their retirement, but participants can change their contribution rate.

The federal government would automatically contribute 1% of the person’s income to the account as long as the individual continues to work. Anyone who earns less than about $67,400 annually would qualify for a match in the form of a refundable tax credit contribution of up to 4% of the participant’s income, though this match would reduce for those who earn more than the country’s median income: $40,480 in 2022.

“This is a bill that would empower Americans, particularly low-income Americans, to grow that nest egg that gives them the power to retire with dignity,” Smucker told LNP | LancasterOnline Thursday.

Smucker said his bill would especially benefit people who work multiple part-time jobs, contract gigs or for popular rideshare services, like Uber and Lyft. “This is targeted to individuals who do not have access through their employer.”

In a Jan. 24 letter signed by Bill Sweeney, AARP’s senior vice president of government affairs, the organization noted that nearly a quarter of Americans “has no retirement savings, and more than half of all Americans report they are concerned they will not achieve financial security in retirement.”

“We know that Americans are much more likely to save when they have access to retirement savings options at work,” Sweeney wrote.

Smucker said he’s also hoping the bill would help low-income families build generational wealth that can be passed on to younger generations.

According to Smucker’s staff, the retirement plans envisioned by the bill would mirror those of the pre-existing Thrift Savings Plan, which allows federal workers to invest in tax-advantaged retirement accounts. This year, those enrolled in TSPs under the age of 50 can deposit $23,000 into their account, while those over 50 can deposit up to $30,500.

The Congressional Budget Office has not analyzed what the potential cost of implementing the proposal would be, but Smucker’s office estimated it would cost the federal government roughly $40 billion a year. Lawmakers are still negotiating how to pay for the proposed program, according to Smucker.

But Smucker said that cost is insignificant compared to other retirement tax incentives, which he said are largely targeted toward the country’s wealthiest people.

The CBO estimated that in 2019 taxpayers saved about $276 billion because most retirement savings are tax-exempt. The office also found that the country’s top fifth of income earners received about 58% of those savings.

He said he hopes the legislation would help correct that “imbalance” of retirement savings and that the bipartisan traction it’s gained among lawmakers will fast-track it through Congress.

The bill has the support of six other lawmakers — two Democrats and four Republicans, including Rep. Brian Fitzpatrick of Bucks County.

The Senate companion bill was introduced by Colorado Democrat John Hickenlooper.

Both the House and Senate versions of the proposal have sat idle in committees since October. Hickenlooper introduced similar legislation in 2022, but it was never considered by the whole Senate.

In the past, members of the American Retirement Association – the association for pension, insurance and financial planning professionals – have said they had concerns that such a program could harm the competitiveness between private retirement saving programs, as reported by 401k Specialist Magazine.