money ‘Transformative’ retirement reform package passes the House and heads to the Senate
A retirement reform plan known as “SECURE 2.0” is finally on the move again on Capitol Hill.
The bill, known formally as the Securing a Strong Retirement Act of 2022, was passed by the House of Representatives Tuesday in an overwhelming 414 to 5 vote.
“Oftentimes in this chamber you will hear the phrase transformative,” said Ways and Means committee chairman Richard Neal (D-MA) as the bill neared passage. “Sometimes it’s hyperbolic but on this occasion, this is transformative legislation.”
Expanding on a landmark 2019 retirement bill, the bill aims to further expand Americans' ability to save for retirement and increase their options for doing so. If it passes the Senate, SECURE 2.0 could be a boon for savers from people still paying student loans to retirees behind on their bills.
“SECURE 2.0 is fundamentally designed to make it easier for people to save,” Susan Neely, American Council of Life Insurers President and CEO, told Yahoo Finance Live on Monday. She added there’s “a lot going on in this bill that will be great for retirement savings and it has momentum, thank goodness.”
The bill unanimously cleared the House Ways and Means committee about 11 months ago. Despite the bipartisan support, it languished as lawmakers wrangled over a separate retirement proposal that Democrats had hoped to include in the now-moribund Build Back Better Act.
Now, the resurrected SECURE 2.0 — endorsed by outside groups like AARP and the Red Cross — heads to the Senate where lawmakers of both parties have expressed support for the ideas contained in it and advocates hope it could earn a vote in the upper chamber in the coming months.
“In this bill, we take serious steps to address the savings gap,” Rep. Kevin Brady (R-TX), another of the bill’s key backers, said on Tuesday. “I’m hopeful the Senate picks it up and moves it quickly."
Here are a few ways the bill could change the way Americans save for retirement.
New options for those nearing retirement
Proponents note Secure 2.0 will give retirees — who are living longer than previous generations — more flexibility as they manage a longer retirement.
For one thing, it gives workers more options for “catch-up" contributions as they near retirement, up to $10,000 per year. Another key provision gradually raises the age for taking mandatory distributions from 401(k) plans or IRAs to 75 from 72.
Some lawmakers want to take things even further with required minimum distributions. “My goal is to get rid of it completely,” Brady said of the age restrictions on distributions during an appearance at the Bipartisan Policy Center Solutions Summit streamed on Yahoo Finance in 2020.
On Monday, Neely also highlighted provisions that will makes annuities or other lifetime income options more accessible which, she said, "can be really really helpful in rounding out your retirement."
A recent study found that one in three adults have less than $5,000 in retirement savings and nearly half (46%) have taken no steps to prepare for the likelihood that they could outlive their savings.
Automatic enrollment and increased access
According to the latest government data, only about half of private sector workers participate in a retirement plan at work. Many don’t participate because they have no access, but many simply haven’t signed up for available benefits.
To remedy this situation, the bill would push more employers to automatically enroll new employees into their company’s retirement plan if one is offered. Studies have shown that employers with auto-enrollment retirement plans have higher rates of participation.
The bill also includes inducements to help employers, particularly small businesses and nonprofits, with the daunting start-up costs of offering new plans. Employers can also receive credits for matching workers' contributions. Currently, only 42% of part-time workers have access to a retirement plan at work.
An idea around student loans and retirement
One part of the bill that will surely get the attention of younger people would allow people to save while paying down student loans.
The idea here is to allow businesses to contribute to employees' retirement accounts when workers make student loan payments. In other words, if you put $100 towards your student loan, your company could “match” it with up to $100 going into a retirement plan like a 401(k).
Data from Bankrate suggests that college graduates with student loans often have to delay other priorities. Thirty-four percent report having delayed emergency savings, 23% say they have delayed buying a home, and 29% have delayed retirement savings.
In a recent webinar co-hosted by Yahoo Finance and the Bipartisan Policy Center, Rep. Fred Keller (R-PA) touted these provisions in particular as “a thing that I think everybody can get behind because it's incentivizing people to save.”
Brady adds that the provision "really recognizes reality of newer and younger workers in the workforce and finding smart ways to begin to help them to save."
Other provisions in the bill include changes to streamline the SAVERS credit, which lets certain lower-income workers get additional tax breaks when they save for retirement and makes it easier for military spouses to save for retirement.
The bill also provides a "clearinghouse" for employees to find lost retirement accounts through a national database. Recent studies have found that tens of thousands of retirement plans go unclaimed when workers move from company to company and lose track.
Like the 2019 Act, Secure 2.0 addresses changes to the private retirement system but doesn’t tackle the more challenging issue of Social Security, which a recent U.S. Treasury report found is currently projected to only pay out full benefits through 2033.
This story has been updated with the House vote on the bill.
Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.
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