Benefits advisers encouraged by a major retirement savings overhaul in 2019 are calling on Congress for a complementary legislative package that could include automatic enrollment and student loan repayment provisions.
The House introduced Securing a Strong Retirement Act of 2020 at the end of the last legislative session, but, with strong bipartisan support and ties to a similar Senate-backed proposal, it’s expected to form the framework for a new package dubbed the “SECURE Act 2.0" on Capitol Hill.
This new legislative proposal, likely a consolidation of both proposals that’s expected sometime this year, follows on the heels of the Setting Every Community Up for Retirement Enhancement (SECURE) Act that former President Donald Trump signed into law in late 2019. The law broadened small-employer access to plans that don’t require compliance tests, raised the age when required minimum distributions kicked in, and connected some part-time workers with retirement benefits for the first time.
SECURE Act 2.0 takes up where part one left off, said Fred Reish, a partner at Faegre Drinker Biddle & Reath in Los Angeles. The proposal is aimed primarily at expanding coverage by mandating auto-enrollment in 401(k), 403(b), and SIMPLE individual retirement account plans; lowering the standard even more for long-term, part-time employees eligible for coverage; and even giving employers more tools with which to encourage saving.
“It is meant to enhance the SECURE Act and improve provisions that were already there,” said Denise Appleby, founder and CEO of Appleby Retirement Consulting near Atlanta. “Yes, the SECURE Act was good, but we need to take it a little further.”
Here are some key provisions Appleby and Reish said they expect in a SECURE Act 2.0 package:
Auto-enrollment: Short of mandated retirement benefits or universal coverage, automatically enrolling new employees into existing retirement plans is broadly considered the most critical component in encouraging people to save for retirement. Analysts at the Georgetown University Center for Retirement Initiatives estimated that, by 2040, auto-enrollment programs like those proposed last session could expand coverage to nearly 40 million workers who don’t have tax-advantaged savings. The leading proposals would start new hires at a base contribution rate of 3%, increasing by 1% annually and capped at 10% of pay.
Required Minimum Distributions: Required minimum distributions, or RMDs, are withdrawals the Internal Revenue Service says workers or retirees must make after a certain age. The SECURE Act raised that age threshold to 72. The successive package is expected to go further—raising the RMD age to 75 and exempting retirement accounts of $100,000 or less. Excise tax penalties for failing to take RMDs also would be lowered. Similarly, most proposals would increase limits on catch-up contributions for those nearing retirement. Older savers adopting an aggressive investment strategy in preparation for retirement would be able to annually contribute an additional $10,000 to 401(k) and 403(b) plans—up from $6,500—and $5,000 to employer-backed IRAs—up from $3,000.
Saver’s Credit Simplification: The Saver’s Credit offsets the upfront cost of deferred salary contributions with a nonrefundable tax credit worth up to $1,000. The IRS calculates a filer’s credit using an adjusted gross income and tax filing status scale from 10% to 50% of yearly contributions. The SECURE Act 2.0 would eliminate the tiered rate of credits and replace it with a flat 50% for eligible savers while increasing the maximum dollar amount to $1,500. Appleby, who’s also the founder and CEO of the consumer advocate site Retirement Dictionary, said a simplified Saver’s Credit could go a long way in encouraging people to save.
Student Loan Help: Benefits advisers have been calling on Congress to allow companies to deduct retirement matching contributions they make for employees focused on paying down tuition bills for some time. The second iteration of the SECURE Act is expected to let employees with student loans make payments in place of contributions but still take advantage of their employer’s match. The IRS shelved a regulatory project in 2019 that would have allowed such payments.
Lost and Found Database: The U.S. Department of Labor has been stepping up missing-participant enforcement, causing headaches for advisers who want a strict set of rules for keeping track of or finding participants or beneficiaries who haven’t claimed the money they saved. The House retirement package last year proposed the creation of a national online lost-and-found program for retirement accounts that would be run by the Pension Benefit Guaranty Corporation. Language in the bill suggests it would create a clearinghouse for participants to find lost benefits and for plans that can’t track down former employees because of changed names or addresses.