Congress has passed a workplace retirement access package that promises to add $40 billion in new plan savings over the next decade and reshape the structure of most Americans’ 401(k)s with additional plan features.
The SECURE 2.0 Act was part of a $1.7 trillion omnibus spending bill Congress approved hours before a government shutdown Friday. President Joe Biden has said he intends to sign the measure into law.
Passage of the retirement legislation consoled an anxious industry lobby that feared lawmakers would miss an end-of-year deadline. The bill would have had to be reintroduced, and faced an uncertain future before a new Congress next year.
Besides sidestepping a looming government shutdown, the passage of the spending package will help avert a crisis for retirement savers, according to industry observers. They said a widening retirement access gap threatens to undermine future government-sponsored safety nets, plunging the economy under the weight of new retirees unless more workers save now.
“This is a momentous time for the US retirement industry,” said Chris Littlefield, president of retirement and income solutions at Principal Financial Services Inc. “SECURE 2.0 will increase the access Americans have to retirement savings and enable more workers to start saving for retirement earlier in their lives.”
Like the first SECURE Act Congress passed in 2019, SECURE 2.0 increases the minimum age by which workers are required to start drawing down on their savings, but it goes further by equipping employers with new tools to modify their 401(k) and 403(b) plan designs.
A critical and controversial element of the legislation is an employer mandate that requires all existing defined-contribution plans to automatically enroll new workers starting at a minimum 3% contribution and increasing annually to at least 10% but no more than 15%.
Groups like the US Chamber of Commerce oppose unfunded employer requirements on principal, but supported SECURE 2.0 for its administrative cost reductions and simplified plan designs.
Earlier versions of the SECURE Act first included in Biden’s 2021 Build Back Better plan would have required all US employers to offer auto-enrollment retirement accounts—even if they didn’t already offer retirement benefits for employees. The pared-down auto-enrollment feature in the final SECURE 2.0 only affects new and existing retirement accounts, but it’s expected to capture a wave of new retirement savers.
Under SECURE 2.0, businesses can help younger workers start saving for retirement by making retirement account contributions that match student loan payments or providing small financial incentives to deferred worker contributions. Part-time employees who remain loyal to the same employer can enroll in their company retirement plans under the legislation, even if their limited hours would have otherwise prevented participation.
“The provisions regarding student loans and part-time workers will disproportionately benefit women and diverse populations,” said Melissa Elbert, a wealth solutions partner at Aon Plc. “Women are more likely to have student debt and be employed part-time, so these provisions can be a direct step to lessen the gender gap in retirement income, though there is still plenty of work to be done.”
Additional small employers can take advantage of workplace savings tax credits while even more workers can write off their contributions annually. The legislation turns retirement plans into temporary emergency savings accounts for millions of workers who wouldn’t contribute to a 401(k) for fear of locking their money away.
The SECURE 2.0 Act also helps facilitate defined-contribution retirement plans that more closely resemble costly pension plans that many employers are freezing, rolling over, or closing out entirely. It directs the IRS to create an easier lane for employers to adopt in-plan annuity options for workers—insurance products that ensure guaranteed lifetime income.
Although the Labor Department has been eyeing regulations that limit the influence insurers have on qualified retirement plans, SECURE 2.0 opens up a pathway for closer ties.
“Life insurers have long backed policies that help people plan for their financial futures,” said Susan Neely, president and CEO of the American Council of Life Insurers. “That is why we focused our full advocacy infrastructure on the bill’s passage.”
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