Why the Bipartisan Lankford-Bennet Bill Is Critical to Fixing America's Savings Crisis

What You Need to Know

The Enhancing Emergency and Retirement Savings Act would give retirement savers easier emergency access to the funds in employer-sponsored retirement plans and IRAs.
The sponsors are Sens. James Lankford, R-Okla., and Michael Bennet, D-Colo.
The author says the bill would eliminate a major obstacle to increased worker use of retirement savings arrangements.

Record-high inflation is taking an enormous toll on Americans’ ability to save. Fortunately, Congress is well-positioned to help.

That’s why Nationwide applauds the Senate Finance Committee for adding the Enhancing Emergency and Retirement Savings Act, which is co-sponsored by Sens. James Lankford, R-Okla., and Michael Bennet, D-Colo., to the EARN Act.

Nationwide calls on Senate and House leaders to act quickly to finalize SECURE 2.0, including this important emergency savings reform, and get it to the president’s desk for his signature.

Now is the time for emergency savings reform.

Recent U.S. Commerce Department data reveals that the personal saving rate declined to 6.2% in March, the lowest level in about a decade.

A recent survey also found a staggering 56% of Americans are unable to cover an unexpected $1,000 bill with savings.

That may be why financial professionals support an emergency savings option for their clients, too.

In fact, Nationwide Retirement Institute research found 94% of financial professionals agree that permitting plan participants to withdraw or use limited retirement plan contributions for critical short-term financial needs without an early distribution penalty would help improve Americans’ financial security.

With rising costs, many working Americans find themselves dipping into their savings to pay for everyday essentials.

Add in an unexpected expense and you’re one step closer to a personal financial crisis and one step further from long-term financial security.

The good news is Congress has an opportunity to apply a simple, innovative and bipartisan approach that empowers Americans to save more for emergencies while they simultaneously build long-term savings.

The Enhancing Emergency and Retirement Savings Act is a bipartisan solution.

Lankford and Bennet have introduced the Enhancing Emergency and Retirement Savings Act of 2021, and a companion bill was introduced in the House by Reps. Brad Wenstrup, R-Ohio, and Tom Suozzi, D-N.Y.

This well-crafted, bipartisan, bicameral legislation would encourage participation in retirement plans by giving them additional flexibility and penalty-free access to funds should an emergency hit.

Here’s how it would work:

Those saving in workplace retirement plans or an IRA are allowed to make one penalty-free “emergency distribution” per calendar year.
Distributions are limited to vested amounts over the minimum $1,000 account balance, with an annual maximum withdrawal of $1,000.
Plan participants would be required to replenish the withdrawn amount to the plan before an additional emergency distribution from that same plan is permitted.

Moreover, this flexibility will encourage more Americans to save by removing the hesitation that the money is unreachable in an emergency.

The bill provides a tested solution that works.

In the first year of the pandemic, lawmakers overwhelmingly approved a change allowing retirement savers impacted by the pandemic to withdraw a portion of their savings from a 401(k) or IRA immediately — with no tax penalty.

Many Americans relied on this flexibility to weather the challenging financial times brought about by the pandemic.

This emergency relief expired at the end of 2020. Now Congress has an opportunity to make permanent this same concept and allow workers to tap into a small portion of their retirement savings for emergency expenses.

The reality is that common-sense liquidity in retirement accounts can not only provide immediate relief for millions of Americans, but also encourages more Americans to save for retirement in the first place.

In fact, the two are inextricably linked.