Congress passed SECURE 2.0 on December 22, 2022, as part of a year-end omnibus spending package. For details on what lawmakers included in the final version, see SECURE 2.0 Passed. What Made It In?
The Securing a Strong Retirement Act of 2022 (SECURE 2.0) would make vital financial tools available to a broader swath of Americans and increase the ability of small businesses to offer competitive benefits to help employees prepare for retirement. Although the bill would benefit from a few changes as it moves through the legislative process, its House passage marks a significant step forward for millions of workers currently without the tools to effectively save for retirement.
Bipartisan Progress on Far-Reaching Financial Problems
Congress last acted to strengthen Americans’ retirement security in 2019, when it passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act as part of a bipartisan budget deal. Since then, members of Congress on both sides of the aisle have continued working to expand access to retirement savings vehicles and support small businesses’ ability to offer competitive financial benefits. That bipartisan momentum led to SECURE 2.0, which now moves to the Senate for consideration.
Most Americans worry about running out of money in retirement, making it one of the top financial concerns across the nation. Projections from the Employee Benefit Research Institute show that 41% of households headed by working-age adults will run short of money in retirement, indicating that this fear is well-founded. And while retirement security is important for all Americans, it is hardest to achieve for low-income workers, those without college degrees, people of color, and single women—groups that often have limited access to both the financial tools and the income required to build robust savings.
The SECURE Act aimed to address these challenges with a host of provisions—many recommended by BPC’s Commission on Retirement Security and Personal Savings—such as reducing barriers for small businesses to offer retirement plans, expanding 401(k) plan eligibility to more part-time workers, and making it easier to include lifetime income options in retirement plans. SECURE 2.0 builds on many of these policies to reach even more Americans. While the SECURE Act allowed small employers to band together to offer better 401(k) plans, for example, SECURE 2.0 extends that ability to nonprofit employers offering 403(b) plans. Amplifying the benefits of expanding access to those plans is a requirement in SECURE 2.0 that most new 401(k) and 403(b) plans automatically enroll eligible participants and automatically escalate their contributions by 1 percentage point (up to 10% of wages) annually. (Participants would retain the ability to opt out.)
Other provisions in SECURE 2.0 extend beyond the purview of the SECURE Act to further strengthen workers’ financial security. In addition to enhancing eligibility for the Saver’s Credit (starting in 2027), which offers tax savings to lower earners who save for retirement, SECURE 2.0 would allow employers to match qualified student loan payments with retirement plan contributions, providing a retirement savings jumpstart to those unable to save due to student debt. Other provisions of the bill would expand the tax credit for small employers that establish retirement plans and provide a new tax credit for small employers that expedite military spouses’ eligibility to participate in workplace retirement plans. Moreover, SECURE 2.0 would help workers unable to find the retirement funds they accumulated at companies that moved or changed names by creating a national online “lost and found” for Americans’ retirement plans.
Opportunities Remain to Improve SECURE 2.0
Although much of SECURE 2.0 would benefit broad swaths of workers, two provisions would accrue benefits to a much narrower group of individuals already largely well-prepared for retirement. Raising the required minimum distribution age from 72 to 75 and increasing the limit on “catch-up” contributions for late-career workers would both serve primarily as tax breaks for higher-earning workers. Contrast this to a provision that was omitted from the bill, a required minimum distribution exemption for low-asset savers, which could reduce tax code complexity for lower-income retirees.
Following passage in the House, the Senate now has an opportunity to further focus SECURE 2.0 on households with the greatest need for improved retirement security, including by adding support for emergency savings, which play a crucial role in safeguarding retirement funds. Recent research shows that households with at least $1,000 in emergency savings are half as likely as those with no emergency savings to take an early withdrawal from their workplace retirement savings account. Meanwhile, 43% of lower-income households have reported having no emergency savings at all.
Policymakers have a variety of options for boosting emergency savings, from providing incentives to reducing regulatory barriers, but all policy innovations should adhere to five key principles developed by a coalition of organizations, including BPC, focused on financial security: New emergency savings policies should allow for automatic enrollment, keep emergency savings distinct from other funds, promote a wide range of savings options, work to meet household needs, and safeguard retirement savings.
Congress can also do even more to ensure access to workplace retirement savings for the millions of Americans working for small businesses by making it easier for those employers to offer plans. Simultaneously, they can encourage new and existing plans to use best practices (like automatic enrollment, automatic escalation, and automatic re-enrollment) that increase participation and savings.
Americans face an array of short-term economic issues, but retirement savings remain vital to households’ long-term financial wellbeing, and SECURE 2.0 represents a significant opportunity to make saving for retirement easier and more accessible. BPC applauds the continued bipartisan efforts to achieve this goal.
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