Americans’ retirement plans may be getting a massive makeover. The Securing a Strong Retirement Act, AKA Secure 2.0, passed the House on a bipartisan basis (and overwhelmingly so, with 414 lawmakers voting yes and only 5 voting no) on March 29th. And it could soon pass the Senate.
The bill could fix many retirement issues facing American workers — and given that nearly half of older workers have no retirement savings and Boomers, on average, do not have enough money saved for retirement, it could come at no better time.
Although there are some key details to resolve — the House passed a version of Secure 2.0 that is separate from one the Senate has been working on, the Retirement Security and Savings Act — there are some major similarities to the laws that could benefit workers.
So how would retirement savings benefit under the new bill?
The State of Retirement Savings for Americans Is Not Fabulous
The bill comes at a time when the state of retirement for Americans is, well, not great. According to 2021 data from the Natixis Global Retirement Index, 41% of respondents said they didn’t have financial security to retire, and 59% had accepted that they will have to work longer in life in order to survive retirement. Thirty-six percent of respondents believed they would never have enough money to retire. And research has shown that across generations, from Boomers to Millennials, people are not saving enough to retire anywhere near 65.
Another 2021 survey of people aged between 40 and 73 found that more than half of respondents had less than $50,000 saved for retirement, almost 60% of workers were putting less than 10% of their income into retirement savings, and a third weren’t even putting aside 5%. Millennials were the worst off in the survey.
In other words, retirement plans and the way employers, and the rest of us, approach them need an overhaul if any of us want to stop working at 65 to enjoy our hobbies and live comfortably in retirement.
That’s where two retirement overhaul plans — the Secure Act 2.0 and the Retirement Security and Savings Act, come into play. While the Secure Act 2.0 has passed the House, the Retirement Security and Savings Act, which shares similarities with it, is being debated in the Senate, per CNBC. No matter which one passes, significant and beneficial changes could be coming to retirement in a way that could actually help people afford the end of their lives.
What’s in the Secure Act 2.0?
- Most employers would be required to automatically enroll employees in their 401k plan and contribute at least 3%, with contributions increasing annually until workers are contributing 10% of their income
- 401k catch-up contributions, in which older Americans are allowed to make additional contributions that are larger than the standard contribution limit, would be expanded to allow 62-, 63- and 64-year-olds to contribute up to $10,000 starting in 2024
- Those enrolled in SIMPLE plans would be able to give $5,000 in catch-up contributions
- Catch-up payments would be post-tax (i.e. Roth) contributions
- Matching contributions — in which an employer matches up to a percentage of retirement savings that their employee contributes — could be post-tax, too
- Mandated annual withdrawals — otherwise known as required minimum distributions (RMDs) wouldn’t have to start for retirees until they’re 73 in 2023, 74 in 2030, and 75 in 2033. (RMDs are the amount of money that must be withdrawn from employer-sponsored IRA, SEP, and SIMPLE retirement accounts by those with accounts of a certain age)
What’s in the Retirement Security and Savings Act?
- The bill would not require employers to auto-enroll workers into 401k plans, but would provide incentives to encourage employees to do so
- Would expand 401k catch-up contributions to allow 60-year-olds and older to contribute $10,000
- RMDs wouldn’t have to start for retirees until they turn 75 in 2032 or later
- RMDs would be waived for people who have less than $100,000 saved for retirement and there would be a reduction to the financial penalty of not taking RMDs
- Would increase the maximum cash amount allowed in a qualified longevity annuity account to $200,000
What’s in both plans?
- Both bills would feature/create retirement savings “lost and found,” which would create a national, online database for employees to keep track of their retirement savings accounts when they move between jobs
- Both would allow part-time employees who work at least 500 hours for two straight years to be eligible for 401k plans offered by their companies
- Both bills would remove the 25% cap value of retirement accounts if you want to take a qualified longevity annuity contract (QLAC)
- Both would make it easier for employers to contribute to 401k, and other workplace retirement plans, for employees who are too busy making student loan debt payments to save for retirement — a major issue for working Gen Xers and Millennials right now