Congress is divided on just about every issue but a recent bill passed in the House of Representatives showed that there is at least one area that our representatives from both sides of the aisle can agree on: retirement savings.
Of course, it’s no secret that people aren’t saving enough for retirement. A recent survey from the Federal Reserve found the median amount of savings in Americans’ retirement accounts was only $65,000. Another study from the Insured Retirement Institute’s data found that an estimated 33% of workers are saving less than 5% of their income for their retirement and 25% of Americans have no retirement savings at all according to a report from accounting firm PWC. The Wall Street Journal warns that a generation of Americans is entering old age the least prepared in decades and, according to the Government Accountability Office, about half of households age 55 and older have no retirement savings at all.
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So … enter Washington, with two bills aimed at addressing this issue.
The most recent of these bills is called the Securing a Strong Retirement Act and it recently passed the House by a margin of 414-5. It builds on 2019’s Setting Every Community Up for Retirement Enhancement. Both bills are referred to as the Secure Act 1.0 and Secure Act 2.0.
The original Secure Act 1.0 kind of fell under the radar due to its passage so close to the Covid outbreak. But it includes many incentives for small businesses to help their employees save for retirement. Among those incentives are tax credits to pay for half of the costs to start a 401(k) plan for employers with fewer than 100 employees, an additional tax credit for making existing plans require automatic enrollment, a pushing back of the age where distributions from a retirement plan are required to 72 (allowing older employees to work longer), the ability to include more part-time employees in a retirement plan and tax incentives to allow the distribution of funds from 529 Education Plans for student loan repayments. The bill also expanded the availability multi-employer plans so companies could share administrative expenses.
So popular was the first bill that a version 2.0 bill from the House is now making its way to the Senate, where bipartisan approval is also expected, after a few minor changes.
This bill adds even more retirement incentives for both businesses and employees including a 100% reimbursement of 401(k) plan startup costs to employers through tax credits, a further increasing of the minimum distribution age to 75 and now a requirement to automatically enroll new employees in a company’s retirement plan (they can still opt out) with contributions increasing from 3% to 10% over seven years. The new bill also establishes a “retirement savings lost and found” national online database for people who may have lost track of their participation in a retirement plan. It also allows more distributions from retirement and after-tax plans like Roth IRAs to help victims of domestic abuse and other hardships.
Is all of this really needed? Some experts, like Andrew G Biggs at the American Enterprise Institute, makes a strong case for why the media’s retirement “crisis” is overblown. And maybe it’s not a retirement “crisis” but it’s certainly a problem.
The Secure Act 2.0 will still benefit both employees and employers. To me, it’s a no-brainer – a low-cost regulation that strongly encourages people to do what they should be doing and that’s being financial prudent. I believe we’ll see passage of this bill by the Senate and signed legislation this year, all with significant bipartisan support. That’s because – as most small business owners will agree – this is one of those bills that’s pretty tough to oppose.
