Bill Overview
Title: Starter-K Act of 2022
Description: This bill allows employers who do not provide a retirement plan to establish a starter 401(k) deferral-only arrangement for plan years beginning after 2022. The bill defines starter 401(k) deferral-only arrangement as any cash or deferred arrangement that meets specified automatic deferral requirements, contribution limitations, and notice requirements. Such arrangements also allow catch-up contributions for individuals age 50 and over and exempt such employers from complying with certain participation and discrimination standards.
Sponsors: Sen. Barrasso, John [R-WY]
Target Audience
Population: Private sector workers without workplace retirement plans
Estimated Size: 59000000
- The bill targets employers who currently do not provide a retirement plan, which suggests a significant number of small or medium-sized businesses may be affected.
- Employees of these companies, who previously had no access to a workplace retirement plan, are directly affected because they will now have access to a starter 401(k) plan.
- The bill includes automatic deferral, so employees may automatically begin to have a portion of their salary deferred into a retirement account unless they opt-out, impacting their take-home pay and long-term savings.
- Current research indicates that there are around 59 million private-sector workers in the US who have no access to retirement plan at work.
- The bill allows employees aged 50 and over to make catch-up contributions, which may affect older employees, who are typically more focused on retirement savings.
- The legislation exempts employers from certain standards related to participation and discrimination, potentially impacting compliance costs and legal obligations for these employers, allowing easier setup of retirement plans.
Reasoning
- Given the policy's target of 59 million private-sector workers without current access to a workplace retirement plan, only a portion of this population can be affected given the budget constraints.
- The $10 million budget in year 1 suggests a limited scope: potentially assisting a small fraction of the total target population initially, possibly focusing on small to medium businesses, which traditionally might not provide such benefits.
- The ability to set up starter 401(k) plans without strict compliance obligations reduces costs for employers, likely encouraging adoption among small businesses that can now extend retirement benefits to their employees.
- Automatic deferral regulations imply that employees will likely see a change in their contribution to retirement savings unless they opt-out, impacting their take-home pay in the short term but potentially increasing their retirement funds in the long run.
- Older employees, particularly those over 50, who can make catch-up contributions, are expected to benefit more significantly in terms of retirement savings.
- The limited budget and focus mean not all 59 million targeted employees will be immediately impacted, requiring incremental rollouts and prioritization based on employer readiness and employee demographics.
Simulated Interviews
Administrative assistant (Dallas, TX)
Age: 30 | Gender: female
Wellbeing Before Policy: 5
Duration of Impact: 5.0 years
Commonness: 10/20
Statement of Opinion:
- The new starter 401(k) sounds like a good opportunity to start saving for retirement, something I hadn't been able to do before through work.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 5 |
| Year 2 | 7 | 5 |
| Year 3 | 7 | 5 |
| Year 5 | 8 | 6 |
| Year 10 | 8 | 6 |
| Year 20 | 9 | 7 |
Warehouse manager (Columbus, OH)
Age: 45 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 3.0 years
Commonness: 8/20
Statement of Opinion:
- I might contribute if the deductions are automatic, not sure I would have done it on my own.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 6 | 6 |
| Year 3 | 7 | 6 |
| Year 5 | 7 | 6 |
| Year 10 | 7 | 6 |
| Year 20 | 8 | 6 |
Bookkeeper (Miami, FL)
Age: 52 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 10.0 years
Commonness: 6/20
Statement of Opinion:
- Really appreciate the catch-up contribution option. It's been on my mind to save more for retirement.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 6 |
| Year 2 | 8 | 6 |
| Year 3 | 8 | 6 |
| Year 5 | 9 | 7 |
| Year 10 | 9 | 8 |
| Year 20 | 9 | 8 |
Graphic designer (San Francisco, CA)
Age: 27 | Gender: other
Wellbeing Before Policy: 5
Duration of Impact: 0.0 years
Commonness: 4/20
Statement of Opinion:
- I still need to figure out how this applies to me as a freelancer. Doesn't seem directly relevant.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 5 |
| Year 2 | 5 | 5 |
| Year 3 | 5 | 5 |
| Year 5 | 5 | 5 |
| Year 10 | 5 | 5 |
| Year 20 | 5 | 5 |
Shop owner (Phoenix, AZ)
Age: 60 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 20.0 years
Commonness: 7/20
Statement of Opinion:
- This new plan might finally let me offer something to my employees.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 9 | 7 |
| Year 5 | 9 | 7 |
| Year 10 | 9 | 7 |
| Year 20 | 9 | 7 |
Retail manager (Austin, TX)
Age: 39 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 10.0 years
Commonness: 9/20
Statement of Opinion:
- I'm glad my company is embracing this. Helps me prepare better for retirement.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 8 | 7 |
| Year 5 | 9 | 7 |
| Year 10 | 9 | 8 |
| Year 20 | 9 | 8 |
Sales representative (Raleigh, NC)
Age: 34 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 5.0 years
Commonness: 8/20
Statement of Opinion:
- I think having a retirement account will give me more peace of mind about the future.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 6 |
| Year 2 | 8 | 6 |
| Year 3 | 8 | 6 |
| Year 5 | 8 | 7 |
| Year 10 | 8 | 7 |
| Year 20 | 8 | 7 |
Software developer (Seattle, WA)
Age: 50 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 10.0 years
Commonness: 5/20
Statement of Opinion:
- Makes saving easier and more feasible now that we have an option.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 6 |
| Year 2 | 7 | 6 |
| Year 3 | 8 | 6 |
| Year 5 | 8 | 7 |
| Year 10 | 9 | 8 |
| Year 20 | 9 | 8 |
Restaurant manager (New York, NY)
Age: 42 | Gender: male
Wellbeing Before Policy: 5
Duration of Impact: 3.0 years
Commonness: 10/20
Statement of Opinion:
- If it lowers my paycheck too much, I might opt-out, but I like the idea of automatic savings.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 5 |
| Year 2 | 6 | 5 |
| Year 3 | 6 | 5 |
| Year 5 | 7 | 5 |
| Year 10 | 7 | 6 |
| Year 20 | 8 | 6 |
Nurse (Chicago, IL)
Age: 65 | Gender: female
Wellbeing Before Policy: 4
Duration of Impact: 0.0 years
Commonness: 3/20
Statement of Opinion:
- I might retire soon, so I don't think I'll use this new plan, but it's good for my coworkers.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 4 | 4 |
| Year 2 | 4 | 4 |
| Year 3 | 4 | 4 |
| Year 5 | 5 | 5 |
| Year 10 | 5 | 5 |
| Year 20 | 5 | 5 |
Cost Estimates
Year 1: $10000000 (Low: $5000000, High: $15000000)
Year 2: $12000000 (Low: $7000000, High: $17000000)
Year 3: $13000000 (Low: $8000000, High: $18000000)
Year 5: $15000000 (Low: $10000000, High: $20000000)
Year 10: $18000000 (Low: $13000000, High: $23000000)
Year 100: $25000000 (Low: $17000000, High: $33000000)
Key Considerations
- The effectiveness of the policy depends heavily on employer adoption rates and employees' decisions to remain enrolled.
- Administrative costs for businesses are expected to be low, but the actual burden could vary depending on the specific implementation details at each organization.
- Long-term economic benefits are largely indirect and may take years or decades to fully materialize as they rely on increased retirement readiness of the population.