Expanding Saver's Match
Starting in 2027, the existing saver's credit will be replaced by a 50 percent matching contribution (on up to $2,000 per taxpayer or $4,000 per couple) from the federal government (the match will be deposited into existing 401(k)s and IRAs). That matching contribution will thus be limited to $1,000 per taxpayer ($2,000 per married couple). The match will be subject to a gradual phase out based on income levels. The phaseout will begin at $20,500 for individuals and $41,000 for married couples. Once an individual's income exceeds $35,500 ($71,000 per couple), they lose eligibility for the match. A ranking Senate finance committee member recently introduced legislation that would double the maximum value of the federal matching contribution and also raise the income thresholds used to determine eligibility.
We asked two professors and authors of ALM's Tax Facts with opposing political viewpoints to share their opinions about expanding the SECURE Act 2.0's saver's match program.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Their Reasons:
Bloink: We should absolutely be working toward expanding access to the federal government's matching retirement contribution. As it stands, the match is only available to taxpayers with very little income available for savings in the first place. By increasing the income thresholds, more taxpayers would become eligible for the match. Yes, it is important that the Treasury issue streamlined guidance on how the program will operate and make it as simple as possible to encourage plan sponsors to offer the feature. That doesn't mean we shouldn't also be aiming to expand the program.
Byrnes: The saver's match program has technically not yet become effective. Before we consider expanding the program, we should first be concerned with getting a firm grasp on how the existing program will work in practice. It's an incredibly complex undertaking. Yes, the IRS has released guidance on how the program will work--guidance that has only highlighted the complexities and challenges the government will be facing in terms of implementing the program as it stands.
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Bloink: Increasing the match from 50% to 100% (for a maximum match of $2,000) would provide a stronger overall incentive for the individual to save more, even if they have very little to save in the first place. That's the entire point of the program. That it might be administratively more difficult is not a reason to avoid providing the strongest possible savings incentives as quickly as we can.
Byrnes: We have to remember that as it stands, the saver's match feature is optional for employer plans. Plan sponsors have no obligation to accept saver's matching contributions from the government—meaning that eligible taxpayers with 401(k) accounts would have to establish new accounts to receive the match. If we complicate and change the program before plan sponsors become comfortable with the saver's match, plan sponsors might simply decline to accept government matching contributions—and it's not a given that qualifying individuals would go through the extra steps to establish IRAs.
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Bloink: The administrative issues are the administrative issues--they exist whether we expand the program or leave it as is. Once the systems are in place--and they must be developed regardless of how many taxpayers are eligible for the match--there's no reason not to expand the program by raising the income thresholds and providing a stronger incentive to save in the form of an increased match.
Byrnes: Instead of changing the rules so that more taxpayers would immediately become eligible for the match, we should focus on easing into the program's initial stages, making the match feature simple for plan sponsors to accept and getting the program up and running in 2027 and 2028. Once the system is functioning, we can consider expansion.