Cantwell Legislation would Create Lifelong Learning Accounts Similar to 401(k)s

Plan would let individuals set up portable, employer-matched savings accounts, create tax incentives to encourage employer contributions

WASHINGTON, DC – Wednesday, U.S. Senator Maria Cantwell (D-WA) announced bipartisan legislation she introduced on the first day of the new Congress to give individuals and businesses new tax incentives to invest in continuing education and skills training opportunities. Cantwell’s bill would create portable asset accounts called Lifelong Learning Accounts (LiLAs), similar to 401(k)s, that workers could use to pay for continuing education and training. The bill, cosponsored by Senator Olympia Snowe (R-ME), would initially authorize LiLAs in 10 states as a demonstration project.

“Our region’s economy depends on a highly-skilled workforce to stay competitive,” said Cantwell. “With more and more local companies requiring advanced training, workers and businesses must be able to adapt, and that means learning new skills. By investing in new training opportunities, we can strengthen our workforce, lead the way in global innovation, and make learning a lifelong process.”

The goal of Cantwell’s LiLA Act is to encourage employees to set aside money for continuing education, and to encourage employers to provide matching funds. LiLAs are portable asset accounts that individuals can use to finance education and training. Workers would pay into LiLAs, with employers contributing matching funds. Employers could offer matching funds as part of an employee compensation package. Individuals could use the funds at any time, without tax consequences and with no expiration date, for education, training, and other expenses related to any effort to upgrade their skills.

“I appreciate Senator Cantwell’s continued leadership on workforce development issues,” said Don Bennett, Interim Executive Director of the Washington State Workforce Training and Education Coordinating Board. “She truly cares about the lifelong learning needs of workers and the challenges businesses face when looking for employees with the skills needed in today’s economy. These accounts will be a good tool to ensure Washington grows and maintains a highly skilled workforce.”

The LiLA Act would create a competitive 10-state demonstration of LiLAs for up to 200,000 participants. Both the worker and the participating employer would receive a tax benefit for contributions up to a defined limit. In the selected demonstration states, any person who is employed, including those who are self-employed, could contribute up to $500 annually to a tax-free account owned by the individual and receive a tax credit for contributions up to the limit. Employers who match their employees’ LiLA contributions would receive a tax credit of up to $500 per employee.

“The world is changing, and the work force has to keep pace,” said Bill Center, President of the Washington Council on International Trade. “Senator Cantwell’s proposal for Lifelong Learning Accounts address a real need. It is precisely the sort of progressive incentive program that will foster and encourage learning partnerships between individuals, employers and educators. LiLAs will make it easier for workers to transition and update their skills as needed.”

At present, there is no federal law governing savings accounts similar to those Cantwell’s legislation would establish. Cantwell’s plan differs from existing education tax benefits in several key respects:

  • There is no age limit at which benefits expire, unlike Coverdell Education Savings Accounts, which expire at age 30;
  • Employers would receive incentives to match employee contributions, unlike the Hope or Lifetime Learning Tax Credit, Coverdells, or 529 plans;
  • LiLAs are portable and can be used by unemployed or laid-off workers, unlike employer-provided Section 127 plans;
  • Part-time students can benefit from LiLAs, unlike the Hope credit or Coverdells, which require beneficiaries to be at least half-time students;
  • There is no age limit on making contributions, unlike contributions to Coverdells, which must be made before the beneficiary turns 18.