New Federal Proposal Could Give You a 5% Match on Retirement Contributions

Brian J. O'Connor
Some part-time workers, like this grocery store employee, would potentially earn access to the federal Thrift Savings Plan under the Retirement Savings for Americans Act.
Some part-time workers, like this grocery store employee, would potentially earn access to the federal Thrift Savings Plan under the Retirement Savings for Americans Act.

Low- and middle-income workers who aren't covered by a workplace retirement savings plan would get access to the federal Thrift Savings Plan, under a bipartisan bill introduced in the U.S. Senate recently.

"Americans who work hard their entire lives deserve to retire with dignity," Sen. John Hickenlooper, D-CO, said in a statement. "This bill helps low-income workers enjoy a secure retirement and fulfill their American dream.''

The Thrift Savings Plan is a defined contribution retirement savings account that covers federal workers and members of the military. The plan operates much like the 401(k) and similar private retirement savings plans offered by many employers. About one-third of all workers in the U.S. don't have access to such a defined contribution plan at work.

Do you have questions about building a retirement plan? Speak with a financial advisor today.

The Retirement Savings for Americans Act (RSAA)

Under the proposed Retirement Savings for Americans Act (RSAA), any full- or part-time worker who isn't covered by an employer-sponsored retirement savings plan would automatically be enrolled into the Thrift Savings Plan. This is similar to the auto-enrollment policies in place at many private employers.

The plan would automatically deduct 3% of each participant's paycheck and put it in the tax-deferred accounts, with a 1% automatic match and up to a 4% match through a refundable tax credit. Workers could increase or decrease their contributions, or opt out entirely.

The plan would cover independent and gig workers and would phase out at median income levels. The accounts would also be portable and available to workers for their entire lifetimes and would be the property of each participant.

The Thrift Savings Plan – sometimes called the world's largest defined contribution plan – is widely praised for offering a mix of low-fee index funds along with an option to invest in a selection of mutual funds. In 2022, total expense ratios for TSP funds ranged from 0.057% to 0.090%, according to TSP.gov.

Reaction to the Bill

The Thrift Savings Plan is a defined contribution retirement savings account that covers federal workers and members of the military.
The Thrift Savings Plan is a defined contribution retirement savings account that covers federal workers and members of the military.

This iteration of the RSAA is a slightly modified version of a similar bill introduced under the same name during the last Congress. Sponsored by Hickenlooper and Republican Sen. Thom Tillis of North Carolina, as well as U.S. Reps. Terri Sewell, D-AL, and Lloyd Smucker, R-PA, the measure was developed to improve retirement security for the approximately 40 million U.S. workers who don’t have access to a retirement savings plan at work.

The plan has been praised by several economic experts, including Teresa Ghilarducci, a labor economist at the New School.

"The Retirement Savings for Americans Act would equip millions of low- and moderate-income workers to build a nest egg for themselves and for future generations, leading to a stronger economy for all Americans in the process," Ghilarducci said in a statement.

However, the American Retirement Association – a nonprofit professional organization comprising five different industry associations and thousands of members – has come out against the bill. The group fears that giving workers access to the federal retirement plan would encourage private employers to drop their 401(k) plans and send workers to the Thrift Savings Plan, especially because the federal match would be better than the matches offered in many private plans.

“We oppose the legislation because we believe the provisions in SECURE 2.0 should be given a chance to make an impact and because we believe this proposal creates a federally funded retirement plan to the detriment of the private system by offering a matching contribution only to those in the program, which is not the direction to go with our country's retirement system," ARA CEO Brian Graff told John Sullivan of the ARA.

Bottom Line

If passed, the Retirement Savings for Americans Act would take low- and middle-income workers who lack access to work-sponsored retirement plans access and enroll them in the federal Thrift Savings Plan. While the TSP typically only covers federal employees, the bipartisan bill would grant full- and part-time workers, including gig workers, access to the plan and up to a 5% cumulative match.

Retirement Planning Tips

  • Let a financial advisor help you plan for your golden years. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.

  • Whether you’re enrolled in the TSP, a 401(k) or have an IRA, keeping track of your progress in saving for retirement is essential. SmartAsset’s retirement calculator can help you project how much your savings could be worth by the time you retire and whether it will be enough to cover your projected expenses.

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