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How will a divided Congress affect your 401(k) and retirement plans?

New legislation could make it easier for businesses, especially small businesses, to set up and administer retirement plans for their workers.
About 72,000 workers had amassed $1 million or more in their 401(k) retirement plans at the end of 2014, nearly twice as many as in 2012, a new study says.
A divided Congress could find common ground on the issue of how to make it easier for Americans to save for retirement.

The market survived the midterms, and Wall Street seemed reassured that a divided Congress is, at the very least, not a worst-case-scenario for stocks. And after a midterm election cycle marked by acrimony, economists and market analysts are looking to one of the few places on which a divided Congress could find common ground: Making it easier for Americans to save for retirement.

“Generally speaking, there’s no reason for business or markets to worry particularly about this Congress,” said Nicolas Veron, a senior fellow at Bruegel think tank in Brussels and the Peterson Institute for International Economics. “I view it as generally benign for the business environment, but with a number of question marks that remain," he said, particularly with regard to trade.

A pair of bills advancing in the Senate and House — respectively, the Retirement Enhancement and Savings Act of 2018 and the Family Savings Act of 2018 — could be combined to create legislation that would streamline the rules around defined-contribution retirement plans, such as 401(k)s, the default retirement savings vehicle for American workers today. The hope is that new legislation will make it easier for businesses, especially small businesses, to set up and administer retirement plans for their workers.

Brian Kropp, group vice president of Gartner’s HR practice, said retirement savings is a safe area of compromise for both political parties because it satisfies the goals of key constituencies in each. “From a Democratic perspective, it creates more opportunities for employees to invest. From a Republican perspective, it’s of interest because it’s able to put more money into the stock market,” he said.

“Clearly, Americans are dramatically underfunded in terms of their retirement overall. I think anything that would encourage additional saving and investing is a good thing,” said Scott Wren, managing director and senior global equity strategist at Wells Fargo Investment Institute.

“There are some interesting ideas out there in terms of universal IRAs that would remove the link between who you work for and your options for retirement,” said Robert Schmansky, president of Clear Financial Advisors. “I think we need to go in that direction to allow more options for people to work with providers that serve their individual needs best,” he said.

There is precedent for this on which lawmakers could build in other categories of savings vehicles, Schmansky said. “We already have a model for this with HSAs where individuals can move their plans to a provider of their choice."

Some economists expressed concern, though, that workers at the lower end of the wage spectrum might not be able to reap the benefits conferred by new retirement-plan legislation. “Far too many people live paycheck to paycheck,” Wren said.

“In most cases the employees who are going to benefit are going to be full-time employees who have enough to set aside for retirement,” Kropp said, but he added that the tight labor market had employers even in lower-wage sectors searching for ways to attract workers.

In this case, more portable, flexible retirement accounts could be a boon, he said. “For lower wage employees, you might see lump sum payments of, say, $500 into IRAs or other retirement vehicles to compete for talent,” he said.

Although $500 isn’t going to be much by itself, Kropp expressed optimism that it would still create a base on which lower-paid workers could build. “Part of the hope is that it starts to build a habit and it grows through time. From that perspective, it’s an incentive to try to make that happen,” he said.