Retirement security is again on the congressional agenda. The Democratic chairman and ranking Republican member of the House Ways and Means Committee recently introduced the bipartisan Securing a Strong Retirement Act (H.R. 8696), dubbed “Secure Act 2,” which builds on the Setting Every Community Up for Retirement Enhancement (SECURE) Act that was signed into law last December to improve retirement savings opportunities for U.S. workers.
The Society for Human Resource Management (SHRM) joined the employer community last year in advocating in support of the first SECURE Act.
Secure Act 2 “will help Americans approach old age with the confidence and dignity they deserve after decades of hard work and sacrifice,” said Ways and Means Committee Chairman Richard Neal, D-Mass. Rep. Kevin Brady, R-Tex., the committee’s ranking Republican, added that “ensuring Americans have the resources they need for a prosperous retirement is a bipartisan priority.”
Key changes Secure Act 2 would put in place are highlighted below.
Mandatory Automatic Enrollment
Secure Act 2 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 manadtory.
“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 American’s 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.”
Expedit 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 “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.
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 would finally provide a statutory basis for employers to adopt this feature.
“We project that the passage [of Secure Act 2] 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 taking 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 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]
Among other key changes, Secure Act 2 also would:
- Let employees age 60 and older make 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.
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, during the firm’s post-election webinar.
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 during the webinar that Secure Act 2 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.
Secure Act 2 “will lay the groundwork for legislation next year if the package doesn’t progress in the post-election lame-duck session,” according to consultants at HR advisory firm Mercer.
Attorneys at global law firm K&L Gates noted, “There is ongoing, bipartisan interest in retirement reform that will provide forward momentum for these efforts. Now is the time for stakeholders interested in retirement reform to engage with key members of Congress to offer feedback on H.R. 8696 and additional proposals for consideration.”
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 SECURE Act was enacted last December, it was folded into an end-of-year spending bill. According to the National Association of Plan Advisors, “a similar scenario could happen this year.”
Simmons added, “Everything in the legislation has bipartisan support, so Congress is likely to pass it, if the opportunity presents itself.”
Related SHRM Articles:
Biden Proposals Could Alter Retirement Plan Landscape, SHRM Online, November 2020
Final Rule Limits 401(k)s from Picking Funds Based on Nonfinancial Factors, SHRM Online, November 2020
For 2021, 401(k) Contribution Limit Unchanged for Employees, Up for Employers, SHRM Online, October 2020
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