The Retirement Savings Modernization Act was introduced by Senators Pat Toomey (R-PA), Tim Scott, and Representative Peter Meijer, according to a statement released on Thursday by the U.S. Senate Committee on Banking, Housing, and Urban Affairs.
According to the announcement, the bill would enable workers to diversify their assets in defined contribution plans, like 401(k) plans, in an effort to increase Americans’ retirement savings. By clarifying that private sector retirement plan sponsors may provide plans, including pensions and 401(k)s, that are properly diversified throughout the whole spectrum of asset classes, this measure will alter the Employee Retirement Income Security Act of 1974 (ERISA).
Given the current status of the economy, which includes record-high levels of inflation, a falling stock market, and a probable recession in the distance, Senator Toomey stated his concerns about the financial future of Americans. Ever since the Fed started slowly raising its interest rates, the stock market has been in free fall. As of yesterday, just the month of September had seen a $3.3 trillion decline in the stock market.
He claims that his proposal will “open the door” to a more secure retirement for millions of Americans by giving 401(k) participants access to the same asset classes as pension plans.
The Senator noted that since 1982, asset classes outside of the public markets have been permitted for pension plans. However, due to the anticipated legal risk for fiduciaries, 401(k) plans have never been permitted to be exposed to alternative assets. Interestingly, the same law applies to both plans. Digital assets are “covered investments,” according to their legislation. The private sector relied on pension plans until the 1970s, but that isn’t the situation anymore in among employees since the majority of them opt for 401(k) plans
The funds that many Americans have worked their entire lives to accumulate have been lost and devalued, Senator Scott argued in defence of the proposal. By updating retirement plans, this law would make sure they could offer a variety of assets with improved returns. American workers and their families deserve to live in security, knowing that when they decide to retire, their hard-earned money will be safe.
In a March notification, the U.S. Department of Labor (DOL) expressed concern regarding cryptocurrency investments in 401(k) plans. The DOL stated that it had “severe concerns” about whether it was prudent for a trustee to expose participants in a 401(k) plan to direct investments in cryptocurrencies or other items whose value is linked to cryptocurrencies. Retirement accounts of participants are put at risk by these investments, which also carry high fraud, theft, and loss risks.
Despite the Labor Department’s warning, Fidelity, a significant administrator of 401(k) plans, declared in April that it would accept Bitcoin as an investment choice in its new 401(k) products. The Labor Department was concerned about the financial juggernaut’s choice. Senator Elizabeth Warren is likewise concerned and wants clarification from Fidelity regarding its choice to allow Bitcoin in its plans.