In an age of political gridlock, one cause is gaining rare bipartisan momentum in Washington: helping Americans save for retirement.
Several bills concerning retirement plans are currently making their way through Congress, which is expected to eventually combine them into one package: SECURE 2.0.
“Bipartisanship is strong on achieving this objective,” said Paul Richman, chief government and political affairs officer at the Insured Retirement Institute. “So I don’t think there’s going to be a whole lot of Democrat versus Republican debate about the objectives of what this bill is seeking to accomplish.”
To create SECURE 2.0, the Senate will first have to combine two bills: the EARN (Enhance Americans Retirement Now) Act, which was approved by the chamber’s Finance Committee in June, and the RISE & SHINE (Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg) Act, which sailed through the Senate’s Health, Education, Labor and Pensions Committee that same month.
That combined Senate bill will then need to be reconciled with the Securing a Strong Retirement Act, which the House of Representatives passed almost unanimously in March. Then both houses of Congress will have to pass it. That may sound like a lot, but experts say they’ll do it, possibly before the end of this year.
“The way it is now, it seems like everybody agrees on this,” said retirement expert and author Ed Slott. “It’s just minor details that have to be hammered out.”
So what’s in the bill? If the final package keeps most of what’s in the smaller bills it incorporates, here are five of the ways SECURE 2.0 would affect retirement plans:
Catch-up contributions
If it mirrors the smaller bills, SECURE 2.0 will give older Americans a bigger chance to “catch up” on their retirement savings later in life. The EARN Act allows savers in their early 60s to contribute an additional $10,000 per year to their 401(k)s — up from the $6,500 currently allowed by law. The House bill does the same thing, but differs slightly on the ages.
Emergency expenses
Both Senate bills strive to help Americans with emergency expenses, but in different ways. The EARN Act simply waives the 10% tax penalty for disbursing retirement funds early, if it’s for “unforeseeable or immediate financial needs.” The exemption covers $1,000 per year, and the taxpayer has three years to pay it back.
RISE & SHINE, meanwhile, creates something entirely new. Under that bill, employers could enroll their workers in “emergency savings accounts,” which would absorb up to 3% of their salaries. Once a worker reaches the maximum — which can be set anywhere up to $2,500 — any further contributions would overflow into his or her retirement account.
Raised age for RMDs
For individual retirement accounts (IRAs), both the EARN Act and the House bill would raise the age at which retirees have to start withdrawing money. Under both bills, the starting age for required minimum distributions (RMDs) would shift from 72 to 75. However, that change won’t take place for another decade — in 2032 for EARN, 2033 for the House bill.
“If you read the fine print, that won’t be effective for 10 years,” Slott pointed out. “A lot of people aged 75 will be dead by then waiting around for that.”
Help with student loans
Another measure that’s likely to make it into SECURE 2.0 would help workers pay off student debts. Under both EARN and the House bill, employers could provide matching contributions to their employees’ 401(k)s and other plans, specifically for the purpose of funding their loan payments. The bill’s supporters say this could free up money for retirement savings.
“The rationale behind that is that many of these younger workers are faced with the choice of either paying down their student loan debt or trying to save for retirement. They may not be able to do both,” Richman explained. “Once that student loan is repaid… that would start them being able to build their retirement nest egg sooner.”
Domestic abuse
Another group that could benefit from SECURE 2.0 is domestic abuse victims. Under both EARN and the House bill, such victims would be allowed to withdraw money early from their retirement accounts (including 401(k)s and IRAs), without paying the usual 10% penalty. As it’s written right now, this measure would go into effect immediately after the law is passed.
Trimming around the edges?
These and other measures have proven popular in Congress and are likely to eventually land on President Biden’s desk for his signature. But according to some experts, that popularity is a sign of how tame the legislation is.
“They trim around the edges,” Slott said of the bills. “Everybody likes retirement and apple pie… If they’re supporting it, it means there’s nothing earth-shaking here. If there was, there’d be somebody who’s against it.”
Slott says he mostly supports the legislation. But at this moment of severe inflation, rising interest rates and fears of a recession, a patchwork of small retirement fixes strikes him as inadequate.
“It sounds like Congress can go back to their voters — ‘Look, we helped you save for retirement,’” he said. “That’s good. Now give us money to save. All the money we wanted to save is going to the gas tank. What are you going to do about that?”
Others, including IRI, have offered more full-throated support. Even if the final bill isn’t revolutionary, they say, it’s still a step in the right direction.
“I think that the measures that are included in these bills are designed to help address what we know is very high anxiety and insecurity levels that workers and retirees across the country are feeling today,” Richman said. “So these measures… will put more of America’s workers, retirees and families who are concerned about their financial security during their retirement years on a path toward a more secure and dignified retirement.”