Mandatory Employer Retirement Contributions and New Federal UP Accounts Funded by 39.6% Top Tax Rate

If you’ve ever felt like your employer should be doing more to help you save for retirement, or if you’ve had to navigate the confusing world of setting up your own IRA because your job didn't offer a 401(k), the Saving for the Future Act is about to hit your radar. This legislation is a massive overhaul of how millions of Americans save, essentially creating a new, mandatory, federally-overseen retirement system for private-sector workers who don't currently have one.

At its core, the bill mandates that “applicable employers”—meaning those with 10 or more full-time equivalent employees—must contribute to a qualifying retirement plan for their workers who aren't in a defined benefit pension plan. Starting in the first full year after enactment, this minimum contribution is $0.50 per hour worked by a full-time employee, increasing to $0.60 per hour after two years, and then adjusting for wage growth every three years after that. This is a game-changer for the roughly three in ten private sector workers who currently have no workplace access to retirement savings.

Meet Your New Federal Retirement Account

To manage this new system, the bill creates the Federal Universal Personal Savings Investment Board—a new independent government agency. This Board will oversee the UP (Universal Personal) Account Fund and establish two types of accounts: UP Retirement Accounts and UP Savings Accounts. These accounts are designed to be portable, meaning they follow you from job to job, which is a huge win for people who change jobs frequently or work in the gig economy.

If your employer is required to offer a plan but doesn't already have a 401(k) or similar option, they must use the new UP Retirement Account. Employees will be auto-enrolled in this account with a 4 percent contribution taken from their wages, which automatically increases by half a percentage point annually until it hits 10 percent—unless you actively opt out of the contribution or the annual escalation. The Board is required to ensure the default investment options are low-fee, diversified index funds that automatically get safer as you near retirement, which is great news for the 60 percent of non-retirees who reportedly lack confidence in making their own investment decisions.

The Small Business Mandate and the Tax Credits

For small business owners with 10 or more employees, this bill introduces a new, ongoing operational cost. However, the legislation tries to soften the blow with significant tax incentives. First, the maximum tax credit for small employer pension plan startup costs is quadrupled from $500 to $2,000 for eligible employers. More importantly, the bill creates a brand-new tax credit (Section 45BB) specifically for making these minimum required contributions.

This credit covers 50 percent of the qualified retirement contributions for the first 15 employees, dropping to 25 percent for employees 16 through 30. If you’re a small business owner, this credit is designed to offset half the cost of the mandated hourly contributions for your core team. But here’s the catch: if an employer fails to make the required hourly contribution, they are barred from claiming both the startup credit and the new minimum contribution credit for that year and the four preceding years. The government is making it clear: if you don’t pay, you don’t get the tax break.

Funding the Future: Who Pays?

While the bill creates a massive new savings structure, it also includes the funding mechanism to support it—and that’s where things get interesting for high earners and corporations. The legislation includes two significant tax hikes, both effective starting January 1, 2025:

1. Individual Income Tax Rate: The highest individual income tax rate is increased from 37 percent to 39.6 percent.
2. Corporate Income Tax Rate: The corporate income tax rate is increased from 21 percent to 23 percent.

These tax increases are intended to help fund the system, including the new tax credits and the administrative costs of the Board. The bill even explicitly appropriates revenue equal to the cost of the new employer tax credit (Section 45BB) to the Social Security Trust Funds, ensuring that the tax breaks don't negatively impact the system’s solvency.

Finally, for individuals who work for employers too small to be covered by the mandate (fewer than 10 FTEs) or who are self-employed, the bill offers a new 50 percent tax credit (Section 25BB) on their personal retirement contributions up to a base amount, provided they don't have access to an employer-sponsored plan. This is a huge boost for those who have to go it alone, essentially making half of their retirement savings tax-free at the time of contribution.