Legislation is Required to Help Those Who Need it Most to Save for Retirement

State-Mandated Retirement Plans Benefit Low-Income Workers, but an Even Playing Field is Required

IRALOGIX, a leading innovator in financial technology advancements that harnesses the power of its proprietary technology to offer IRA-focused retirement solutions to every segment of the wealth management industry, regardless of account size or type, today called on Congress to better serve the needs of low-income retirement savers.

According to the 2023 Retirement Confidence Survey conducted by the Employee Benefit Research Institute (EBRI) and Greenwald Research, workers and retirees who have the lowest incomes (less than $35,000) and savings (less than $10,000) and have a major problem with debt are more likely to agree that retirement savings are not a priority.

“While we applaud Congress for its efforts in enacting legislation aimed at enhancing retirement savings, the inescapable conclusion is it doesn’t go far enough, particularly for one of the most underserved groups, low-income workers,” said Lowell Smith, Co-founder of IRALOGIX. “Further legislative action is required to protect these workers’ retirement savings from being used for expenses other than retirement.”

Smith points to the need to enact restrictions on when accountholders can take distributions from retirement accounts. With individuals changing jobs every 3 to 4 years, each job change results in an opportunity to withdraw funds from an account and spend it, putting accountholders further behind in their retirement savings.

“We need restraints that withdrawals before 59 ½ are only permitted for hardship reasons or exceptions to the 10% early withdrawal provisions,” he says.

Additionally, all distributions from an IRA should be allowed to be paid back over time. There are several instances currently where funds can be paid back over time. It only makes sense to allow all distributions to be paid back.

Recently, Pension Portability was enacted to encourage workers who would have been automatically rolled over to an IRA by a former employer to automatically move the account to a new employer plan. This type of measure is beneficial because the original Automatic IRA Rollover Legislation enabled these rollovers to IRAs to become a dumping ground because of the limited investment options available and the lack of a requirement that the IRA programs that the accounts go into provide adequate diversification options.

The only investment options were money markets, CDs, savings accounts, and general accounts, all of which have historically had low returns. In addition, often the returns aren’t enough to cover annual accountholder fees, much less meeting retirement growth needs when taking into account inflation rates.

Either Congress or the Department of Labor should enable rollovers to go into the same type of default funds that are available in automatic enrollment programs in plans like target date funds, balanced funds, and age-based portfolios and make the programs offer a diversification option as part of the IRA defaulted into.

State-Mandated Retirement Plans: One of These Things is Not Like the Other

Recent legislation required small businesses to provide retirement benefits to their employees. Some 30 states have considered requiring state-mandated retirement plans, but only 15 currently have signed these programs into law.

While this legislation should go a long way to help narrow the multi-trillion retirement savings gap in the US and help workers whose employers don’t offer retirement benefits play catch-up, current state-mandated retirement benefits are primarily up to each state.

“Federal intervention is needed to create one unified mandate to help businesses and service providers better meet state-mandated requirements,” says Smith. “In many cases, it’s low-income workers who have been underserved in the retirement benefits arena, and an even playing field would be beneficial to ensure every participant nationwide is treated equally.”

About IRALOGIX™

IRALOGIX is redefining the $13 trillion IRA marketplace through its proprietary, industry-defining technology platform. Through this, IRA account holders, regardless of account size, can benefit from an investment approach previously available only to the largest institutional investors. Financial intermediaries who outsource their IRA business to IRALOGIX’s white-label program can drive added revenues and profitability, simultaneously passing cost savings on to their clients. For more information, visit IRALOGIX.com.

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