July 26, 2021
Council Urges Congress to Reduce Barriers to Savings for Employees with Disabilities
The American Benefits Council has joined with disability groups in urging the U.S. Congress to enact the ABLE Employment Flexibility Act (AEFA), introduced by Representatives Thomas Suozzi (D-NY) and Brad Wenstrup (R-OH) in the U.S. House of Representatives on July 20, which would expand access to retirement savings accounts for people with disabilities.
Employees with disabilities frequently choose not to participate in a 401(k) plan, or must withdraw funds with corresponding taxes and penalties, because the funds accumulated in the plan can imperil their eligibility for means-tested benefits they would otherwise be qualified to receive. Additionally, these employees often require access to their retirement savings before the official retirement age.
The AEFA would reduce these barriers by allowing employers to give workers eligible for the Achieving a Better Life Experience (ABLE) Act of 2014 the option to have retirement contributions made to a 529A ABLE account in lieu of contributions to their employer’s defined contribution plan. The employer contribution would be subject to the same deduction rules applicable to 401(k) employer contributions and the employee would be taxed on the contribution made to the account. This solution follows the Council’s 2018 recommendations for important retirement policy reforms.
The ABLE Act allows qualified beneficiaries with disabilities to save up to $15,000 a year in a 529A savings account for the purpose of supporting and maintaining their health, independence and quality of life — and those funds generally are excluded from the asset limitations of federal benefit programs. The ABLE Act, as amended by the ABLE to Work Act of 2017, also allows an employed ABLE beneficiary who does not have contributions made to an employer-provided defined contribution plan to contribute an additional amount above the current $15,000 limit, up to the federal poverty line for a one-person household (currently $12,880).The AEFA would not make any changes to the ABLE program, but rather addresses how employers can contribute to them.
The AEFA would provide additional flexibility to both employers and employees and allow employees with disabilities to save more money in their ABLE accounts without jeopardizing the tax-qualified status of a retirement plan.