President Donald Trump executed an executive order on Thursday, which provided further substance to a retirement savings initiative he presented during his State of the Union address in February. The proposal aims to address the retirement coverage gap, which has excluded over 50 million predominantly low- and moderate-income earners within the private sector. These individuals are the labor force lacking both a defined-benefit employer pension and a straightforward, subsidized mechanism for workplace retirement savings. The workforce encompasses individuals employed by small enterprises, part-time personnel, independent contractors, and those who are self-employed. It is reported that approximately 78% of businesses employing fewer than 10 individuals do not provide an employer-sponsored retirement plan. Nonwhite workers are among those with the highest likelihood of lacking access. Trump announced that beginning next year, employees will have the opportunity to utilize a website – TrumpIRA.gov – to establish a “new, low-cost IRA account. “You’ll then be able to access the same type of retirement accounts that federal employees enjoy through the Thrift Savings Plans,” Trump said.
“For millions of Americans who lack employer-sponsored plans, this will be truly transformative, as they will gain coverage,” he added. The executive order stipulates that the IRA providers identified on TrumpIRA.gov are required to “maintain low administrative costs,” ensuring that the total annual expense ratio, which encompasses operating costs, management fees, and administrative expenses, does not surpass 0.15% of an individual’s account balance. The companies are likewise barred from enforcing minimum-contribution or balance stipulations. Certain earners who establish an account will be eligible for the federal Saver’s Match, legislation enacted by Congress during the Biden administration, set to take effect next year. The match will be accessible to low- and moderate-income workers earning below $35,500 (or $71,000 for married couples) who contribute up to $2,000 annually ($4,000 for couples) to a qualified retirement plan, such as a 401(k), IRA, or auto IRA. The federal match amounts to a maximum of $1,000, or $2,000 for couples.
Trump’s executive order instructs the federal government to enhance public awareness of the new Saver’s Match, which could potentially incentivize eligible workers to increase their savings. According to Kim Olson, senior officer on the retirement savings project at the Pew Charitable Trusts, 87% of individuals lacking access to a workplace retirement plan expressed a greater likelihood of saving if they were able to receive that match. During the signing event in the Oval Office on Thursday, Trump and Kevin Hassett, director of the National Economic Council, indicated that the administration intends to collaborate with Congress to broaden eligibility for the match to include individuals earning above the existing income thresholds. The executive order further indicates that the administration will advise Congress to “codify the policy set forth in this order so that workers lacking access to employer-provided retirement plans … have access to a retirement option with low fees, eligibility for the Federal Saver’s Match or other matching contributions, diversified index‑based investment options, automatic portfolio choices, and portability.”
It remains uncertain the extent to which the over 50 million individuals eligible to utilize TrumpIRA.gov will actually engage with the platform. Prior to the executive order, a recent analysis by Morningstar examined the implications of automatically enrolling qualified employees into a federally administered plan. Overall, the researchers projected that “approximately 32.3 million workers would enter the retirement savings system under a federal auto-enrollment plan, even after accounting for opt-outs.” However, given that the Trump plan relies on voluntary participation – Congressional authority is probably required for automatic enrollment – the actual number of workers who may experience an increase in their retirement savings as a consequence could be significantly less than Morningstar’s projection.