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Starter 401(k) Bill Introduced in the U.S. House

Legislation

Bipartisan legislation that would make it easier for small businesses to offer retirement plans and that has the backing of the American Retirement Association has been introduced in the House of Representatives. 

Reps. Linda Sánchez (D-CA) and Darin LaHood (R-IL)—both of whom are members of the tax-writing House Ways & Means Committee—introduced the Starter-K Act on June 16. Companion legislation was introduced in the Senate in March by Sens. John Barrasso (R-WY) and Tom Carper (D-DE). 

Noting that only half of small businesses with less than 50 employees currently provide a retirement plan for their employees, the Starter-K Act creates starter retirement plans that streamline regulations and lower costs for small businesses and start-ups, resulting in more access to easy retirement savings, the lawmakers explain. 

Under the legislation, the “starter” defined contribution plans could be established under Code Sections 401(k) and 403(b). Key provisions of the legislation include the following: 

  • employers would be provided a safe harbor for the nondiscrimination and top-heavy testing requirements;  
  • employers would not be required to provide matching contributions, meaning lower costs for small businesses and start-ups; 
  • eligible employers are those that do not currently offer a plan; 
  • annual contributions would be limited to $6,000, indexed to inflation (with an additional catch-up contribution for those at least age 50); 
  • eligible employees would be automatically enrolled at the minimum default level of 3% of pay; and 
  • the Department of Labor would be directed to provide simplified reporting for the plans. 

“Small businesses fuel our economy and allow our communities to thrive,” stated Sánchez. “Unfortunately, the hard-working Americans who keep our small businesses running are often left with few options to save for retirement. This legislation will help small business owners provide their employees with streamlined, cost-effective retirement plans, ensuring more Americans can retire with financial peace of mind.” 

“In Illinois and throughout America, small businesses are the biggest employers, and they should be able to provide their workers with better options to save for retirement,” added LaHood. “Our bipartisan legislation will remove unnecessary, complex regulations to allow more small businesses to offer retirement plans and help more Americans secure their financial future.” 

“The nation’s retirement savings gap is almost exclusively found among small businesses, many of which cite administrative concerns and cost as primary reasons they don’t offer currently access to a retirement savings plan at work,” said Brian Graff, CEO of the American Retirement Association. “As they look to meet the challenges of the ‘Great Resignation,’ the ‘Starter K’ provides both a simplified structure and real tax incentives for hundreds of thousands of small businesses to provide for the first time this option to their workforce. We enthusiastically support this legislation, and the opportunity it presents for millions of hard-working Americans.” 

With the Starter-K Act of 2022 now being introduced in both the House and Senate on a bipartisan basis, it would seem the chances for this legislation being included in a year-end retirement package have improved. While the House has already approved the SECURE Act 2.0 legislation (H.R. 2954), the Senate is gearing up for action on retirement security legislation. In fact, the Senate Health, Education, Labor and Pensions Committee on June 14 approved the RISE & SHINE Act that builds on the SECURE 2.0, and the Senate Finance Committee is poised to act, perhaps as soon as next week.