[This article is updated from an earlier version posted in November.]
Retirement security is again on the congressional agenda. On May 5, the House Ways and Means Committee voted unanimously to send the bipartisan
Securing a Strong Retirement Act to the full House for consideration.
The bill, introduced last November and dubbed "Secure Act 2.0," builds on the Setting Every Community Up for Retirement Enhancement (SECURE) Act,
signed into law in December 2019 to improve retirement savings opportunities for workers.
The Society for Human Resource Management (SHRM) joined the employer community in 2019 to support of the first SECURE Act.
The Ways and Means Committee posted online a summary of the new bill and its full text.
"The retirement crisis in America is real, and will only get worse without easier pathways to saving and encouraging workers to start planning for retirement earlier in life," said Ways and Means Committee Chairman Richard Neal, D-Mass, and Rep. Kevin Brady, R-Tex., the committee's ranking Republican, in a joint statement. "This legislation expands automatic enrollment, simplifies many retirement plan rules, and strengthens small businesses’ ability to offer workplace retirement plans, to make it easier for Americans to plan for their golden years."
They added, "We are now one step closer to improving Americans' financial security, and hope to see this measure move through Congress and be signed into law in short order."
Key changes Secure Act 2.0 would put in place are highlighted below.
Mandatory Automatic Enrollment
Secure Act 2.0 would create new financial incentives for small businesses to offer retirement plans. It would also require new employees, when eligible, to be automatically enrolled in their workplace retirement plan.
"The headline benefit stemming from the SECURE Act 2.0 is that employers who introduce new retirement plans would be mandated to auto-enroll employees," said Jonathan Barber, head of compensation and benefits policy research at Ayco, a Goldman Sachs company that provides financial counseling. While automatic enrollment has been growing steadily as a plan feature, it has never been mandatory.
"Far too many Americans don't take advantage of their company-sponsored 401(k) plans, and this mandate would help raise enrollment rates," Barber said. "However, while this enhancement could be a boon to Americans' retirement security, one-third of private-sector workers don't have access to a retirement plan at work and would therefore not benefit from the legislation."
Higher 'Catch-up' Contributions
Under current law,
employees who have reached age 50 can make extra catch-up contributions to a 401(k) or similar plan. The limit on catch-up contributions
for 2021 is $6,500. Secure Act 2.0 increases the annual limit to $10,000 for participants age 65 or older, and to $5,000 for participants ages 62 through 64. These catch-up limits will be indexed for inflation.
Expedite Part-Time Workers' Participation
The original SECURE Act expanded eligibility for long-term, part-time workers to contribute to their employers' 401(k) plan. Secure Act 2.0 "would expedite the addition of long-term, part-time workers as eligible participants" by shortening from three years to two years the measurement period for eligibility that starts in 2021, wrote Katharine Finley, senior compliance counsel at Hall Benefits Law in Atlanta. As a result, "the first group of long-term, part-time workers would become eligible for participation in the elective deferral of defined contribution plans as of Jan. 1, 2023," a year earlier than under the current law.
[Related SHRM Article: For 2021, 401(k) Contribution Limit Unchanged for Employees, Up for Employers]
Student-Loan Matching
Employers' 401(k) plan matching contributions are traditionally based on plan participants' elective deferrals to their retirement accounts.
While the IRS has opened the door to allowing employers to make 401(k) matching contributions based on employees' student-loan payments—even if employees aren't making retirement contributions themselves—compliance concerns have remained due to the absence of authorizing legislation. Secure Act 2.0 would finally provide a statutory basis for employers to adopt this feature.
"We project that the passage [of Secure Act 2.0] would let 3.4 million people who cannot currently save for retirement due to their student loan bill to immediately begin saving," said Laurel Taylor, founder and CEO of FutureFuel.io, a provider of software for managing student debt repayment benefits.
It would also "allow borrowers to save for retirement using tax-exempt employer contributions to their retirement account, while they simultaneously pay down their debt," she noted. "College graduates with student debt on average have half the 401(k) balance of their debt-unburdened colleagues because they are forced to delay saving, as their student loans take priority. This would rectify that inequality."
Tying employers' 401(k) matching contributions to employees' student-loan payments also could help plan sponsors pass the annual 401(k) plan anti-discrimination test, which prevents plans from favoring highly compensated or key employees, Finley said.
"If the employee demographic would result in an increase in matching contributions for non-highly compensated individuals as a result of incorporating this change, then it may be worth considering the change depending on historic testing results," she pointed out.
Barber noted a concern for employers if Secure Act 2.0 is enacted. "While the bill makes progress toward addressing the growing student-loan debt issue in this country, it only addresses one portion of the population," he said. "Employees may be upset that only certain people can use this new feature, and companies that want to ensure benefit programs are fair to all employees will likely take action to help employees with other forms of debt."
[SHRM members-only toolkit: Designing and Administering Defined Contribution Retirement Plans]
Additional Provisions
Among other key changes, Secure Act 2.0 also would:
- Let employees age 60 and older make 401(k)-type plan catch-up contributions up to $10,000 while leaving the catch-up contribution limit for those ages 50 to 60 at $6,500, and annually adjust both catch-up limits to inflation.
- Raise the age for starting required mandatory distributions from a defined contribution plan to age 75 from age 72.
- Create a national database for Americans to find lost retirement accounts.
- Expand self-correction opportunities, including for participant loan errors and employee elective deferral failures.
- Simplify and increase the Retirement Savings Contributions Credit, or saver's credit, available to low- and moderate-income workers.
- Extend to 403(b) retirement plans some of the design features of 401(k) plans.
A Bipartisan Approach
"In a Biden administration, the Democratic platform for retirement [will focus] on both improving and increasing savings opportunities, particularly for low-income workers, including fixes and options to help make it easier for people to save and to give them more bang for their efforts," said Serena Simons, senior vice president in HR consultancy Segal's Washington, D.C. office.
She added, however, that "the sticking issue is not the savings opportunity but the question of the mandate" on small employers to provide workplace savings plans. "The Democrats would prefer the mandate, the Republicans would not."
James Klein, president of the American Benefits Council, which advocates for employer-sponsored benefit plans, noted that Secure Act 2.0 includes "a requirement for a mandatory offer of a retirement savings plan but not a requirement for employers to contribute toward it," which was a compromise between the approaches favored by each party.
Political Prospects
Klein said, "Retirement measures, like most other things, don't really move on their own. They have to be appended to some larger budget bill or to a comprehensive tax reform measure. So…we should look to the viability of those bigger picture measures as being the best chance for any of this retirement-related legislation to move forward."
When the first SECURE Act was enacted, it was folded into an end-of-year spending bill.
Simmons added, "Everything in the legislation has bipartisan support, so Congress is likely to pass it, if the opportunity presents itself."