The Setting Every Community Up for Retirement Enhancement, or SECURE Act, of 2019 was one of the most significant pieces of legislation affecting the ways Americans save for retirement in decades. The bill added plenty of provisions, changed common pieces of tax planning and made it easier for average Americans to save for retirement. But even the SECURE Act could have used a bit of tweaking and revision.
And with that, the SECURE Act 2.0 was formed.
Now with the bill being tossed around Congress, Americans have another set of powerful tools and provisions to use in order to save for retirement. All in all, the bill builds on the original success of the SECURE Act and helps increase retirement readiness across the board.
To learn more about retirement topics, visit our Retirement Channel.
Building on Good
The original SECURE Act, which took effect in 2019, was recognized as one of the most significant pieces of retirement legislation since the Pension Protection Act of 2006 and the creation of the 401(k) back in the 1970s. The original bill included provisions across a variety of different points. From increasing the age for required minimum distributions (RMD), adding tax benefits for college savings and making it easier for employers to include life-time options and plans for part-time employees, the SECURE Act 1.0 was certainly a game changer.
However, it wasn’t perfect.
While retirement plan balances have increased, the Center for Retirement Research at Boston College still maintains that 52% of U.S. households are at risk of not being able to maintain their pre-retirement income throughout retirement – more work was needed.
To that end, the House of Representatives took up the task and created the Securing a Strong Retirement Act of 2022 (SSRA), also known as the SECURE Act 2.0. The bill was passed near-unanimously back in March.
At the same time, the Senate has been working on its own version of the SECURE Act called the Enhancing American Retirement Now Act (EARN), which basically includes all the proposals of the House’s bill. This, coupled with the Senate Health, Education, Labor and Pensions Committee’s bill called the Rise & Shine Act, forms the basis for SECURE Act 2.0.
The hope is that the Senate and House should be able to hash out their slight differences and send the bill up to President Biden’s desk by the end of the year.
Major Positive Changes
While it’s difficult to see just what will be the final bill as there is still plenty of debate and potential changes ahead before it’s signed, some major points are starting to take shape. Ultimately, the idea is to help ordinary Americans save more for retirement and make it easier to do so.
A huge part of both bills deals with 401(k) and similar retirement plans. For one thing, the pending laws would make it easier for part-time workers to save for retirement. The new bills would require an employer with a 401(k) plan to permit part-timers, with at least 500 hours of service within two years, to be eligible for the plan – down from three years in the original SECURE Act. Moreover, workers with smaller balances would get more leeway with regards to roll-overs and automatic cash-outs.
Secondly, student loan borrowers have some new options with regards to their 401(k)s. Employers will be able to make contributions to 401(k)s for those employees who are paying student loans instead of contributing. High student loan payments (and debt) have been one of the largest contributing factors for young workers, along with a lack of retirement savings.
Older workers get some help as well. Both bills would allow an extra catch-up contribution for those workers once they hit age 62. Right now, retirement savers age 50 or older can place an extra $6,500 in their 401(k) or $1,000 in their IRA. The proposed bills would allow workers aged 62 through 64 to put an extra $10,000 into their accounts.
Retirees would get a break on the RMD front as well. Both bills raise the age for minimum distributions to 75, up from the 72 enacted in the original SECURE Act. RMDs would be eliminated from Roth 401(k) options.
Finally, the bills would continue to increase access to various annuity and other life-time income options into plans. This includes removing/increasing the cap in place for qualified longevity annuity contract’s (QLAC) in 401(k) plans, as well as enhancing protections for employers offering such options. Ultimately, the goal is to reduce retirement income stress by offering more choice for workers.
Check out our Portfolio Management Channel to learn more about managing your portfolio.
Potential Passage
Given that many of the provisions in both the House and Senate are similar and feature just slight differences – such as end dates and ages – there’s a good chance that the SECURE Act 2.0 will be passed, which is wonderful news for retirement savers and retirees. The various provisions in the plans offer plenty for investors and advisors to get excited for. In the end, it’s great news and goes a long way in solving America’s retirement dilemma.
Don’t forget to explore our recently launched model portfolios here.
