Denver – Colorado U.S. Senator Michael Bennet and U.S. Senator James Lankford (R-Okla.), both members of the U.S. Senate Finance Committee, unveiled the Enhancing Emergency and Retirement Savings Act to help Colorado families save for retirement and prepare for unexpected emergencies. The legislation would encourage participation in retirement plans by giving individuals additional flexibility and penalty-free access to funds should a family emergency hit. Bennet and Lankford introduced the bill last week.
“Nearly four in ten Americans can’t afford a $400 emergency expense. I hear all the time from Coloradans who get hit with an unexpected car repair they can’t afford and then lose their job because they can’t make it to work. Millions of families are trapped in this cycle of economic insecurity—one emergency away from everything falling apart,” said Bennet. “This bipartisan legislation will help give workers more flexibility to foot the bill for an unexpected emergency expense.”
“I’ve heard from Oklahomans who experience sudden, unexpected emergencies and need a little flexibility to quickly access their own money. I’ve also heard from Oklahoma employers who offer retirement plans and have employees who don’t participate because they don’t have enough money to save for retirement and build up their savings,” said Lankford. “So many Oklahomans live paycheck to paycheck. They want to start saving for retirement, but they can’t take the risk of losing access to their money in case of an emergency. Our commonsense bill provides Americans the flexibility to save for retirement now, knowing they have access to some of their money for an emergency, and be able to pay that money back into their retirement plan. Adding that flexibility will help encourage workers, who might not otherwise feel comfortable participating in their personal or companies’ retirement savings program, to put money in those accounts with a little more peace of mind. I appreciate the partnership of Senator Bennet, Nationwide, and other supporters as we move this idea forward.”
The legislation would provide a penalty-free “emergency distribution” option from employer-sponsored retirement accounts and Individual Retirement Accounts (IRAs). One emergency distribution would be permitted per calendar year, and that distribution would be limited to vested amounts over $1,000, with an annual maximum withdrawal of $1,000. Additionally, the legislation requires that the individual replenish the withdrawn amount back to the plan before an additional emergency distribution from that same plan is allowed. Together, this will provide flexibility while also ensuring that individuals continue to save for retirement. This bill will also help families avoid needing to turn to predatory loans — the average of which is just $375 — when they experience a car breakdown or an emergency medical appointment. Predatory loans often charge interest rates of 150% or more and trap families in a cycle of economic insecurity.
The bill text is available HERE. A one page summary is available HERE.
The bill is supported by the following groups:
“We believe this excellent legislation will give savers comfort that they’ll have access to their money in the event of an emergency and will remove a significant barrier for low- and middle-income workers to save for retirement in the first place. Most critically, the ability to access a small amount of retirement savings without a tax penalty will help prevent many people from digging themselves into a financial hole due to an unplanned emergency expense,” said Eric Stevenson, President, Nationwide Retirement Solutions. View the full letter HERE.
“The Enhancing Emergency and Retirement Savings Act smartly leverages the existing workplace-based retirement plan system to address this emergency savings problem while ensuring Americans continue to save for a secure retirement following an emergency. The legislation creates a new category of distribution in a 401(k) or similar plan that would allow workers who have a certain balance in these accounts to quickly access their savings to address a personal financial emergency without an additional tax penalty and a minimal amount of paperwork,” said Brian H. Graff, Esq. APM, Executive Director/CEO, American Retirement Association. View the full letter HERE.
“We are writing on behalf of the American Benefits Council to thank you for your leadership with respect to emergency savings and the introduction of the Enhancing Emergency and Retirement Savings Act of 2021. This bill reflects your commitment to good bipartisan retirement policy and responds to a critical need for financial protection in cases of unexpected expenses that often present real challenges for many American workers and their families,” said Lynn D. Dudley, Senior Vice President, Global Retirement and Compensation Policy, American Benefits Council. View the full letter HERE.
“The ERISA Industry Committee (ERIC) applauds the introduction of the Enhancing Emergency and Retirement Savings Act of 2021 and your leadership addressing critical retirement and savings needs. On behalf of our large employer membership, we look forward to working with you to advance this legislation this year,” said Aliya Robinson, Senior Vice President, Retirement and Compensation Policy, The ERISA Industry Committee (ERIC). View the full letter HERE.
“The critical need for emergency savings is why we support the ‘Enhancing Emergency and Retirement Savings Act of 2021.’ This legislation would be a major step forward in providing a penalty-free source of emergency savings. We also believe that if low and middle-income individuals know that they can access their retirement savings without a penalty in the case of an emergency, they will feel comfortable contributing more, so that the bill would enhance both emergency savings and retirement savings,” said David Ireland, Global Head of Defined Contribution, State Street Global Advisors. View the full letter HERE.
“LPL Financial (“LPL”) applauds your leadership in addressing an issue that has arisen as a major concern for millions of Americans—the need for emergency savings. We believe that your bill, the ‘Enhancing Emergency and Retirement Savings Act of 2021,’ would create a critical source of emergency savings while also strengthening the retirement security system,” said Michelle Kelley, Senior Vice President, Government Relations, LPL Financial. View the full letter HERE.
