Most recent political news in the United States is punctuated by divisiveness and conflict. Fortunately for average Americans, however, there appears to be bipartisan support in the U.S. legislature for several measures that could assist people to save for retirement more effectively.
In 2019, the Setting Every Community Up for Retirement Enhancement Act, known as the Secure Act, passed with support from both major political parties. It was the first bill that focused on retirement savings since 2006, but since then, the United States legislature has introduced two new comprehensive bills to help broaden retirement savings access.
In 2021, the Secure Act began getting some updates. The newest version of the bill is called the Secure Act 2.0. It passed the House and Means Committee in May with a unanimous vote, but has not yet been given to the House of Representatives. This isn’t mainly due to pushback against the contents of the bill, but from a growing sentiment that it doesn’t go far enough.
On November 8th, 2021, the House Education and Labor Committee unveiled the Retirement Improvement and Savings Enhancement, or RISE Act, which also addresses retirement savings.
The two bills have some areas of overlap, and the RISE act is seen to many as a slight update of the already-updated Secure Act. Because of this, Senator Bobby Scott (R- Virginia) recently stated that the two bills will be merged before being presented to the House of Representatives.
The Secure Act 2.0 builds on many of the provisions made by the first version of the bill. In particular, much of the bill appears to be aimed at increasing access among investors who have not been able to save sufficiently due to age, debt levels, and income. Here are two of the areas that could see big changes:
The Secure Act 2.0 increases the limits for what are known as “catch up” contributions. Catch ups are extra contributions made by retirement savers who are 50 or older. Catch-up contributions are currently limited to $6,000, but the Secure 2.0 Act would raise that to $12,500.
Set to take effect in 2023, another catch-up contribution category that only applies to people between the ages of 62 and 64 would allow those participants to add another $10,000 to their 401(k)s every year.
The bill would also make all catch-up contributions fall under Roth rules for taxes, meaning that investors would pay full taxes on contributions to avoid paying on withdrawals later.
Two of the major provisions in the Secure Act 2.0 are focused on creating opportunities to encourage saving among low-income workers and those who have significant student loan debt. Under the Secure Act 2.0, employers would be able to match a portion of their employees’ student loan payments. These matching contributions would be placed directly into the employee’s retirement account.
For low-income workers, the act would increase the retirement saver’s credit. Under current rules, participants may receive a tax credit of 10%, 20% or 50% (depending on their income) of their retirement contributions. The maximum benefit is currently set at $1,000. This bill would raise the credit to a flat rate of 50% for people who qualify, and increase the maximum benefit to $1,500.
Many of the provisions in the RISE act build upon the ground broken by the Secure 2.0 Act. For instance, under Secure 2.0, multiple employers in unrelated public education and non-profit organizations would be able to opt in to pooled 403(b) retirement plans. The RISE act broadens the scope of these options. Here, however, are some of the new measures introduced by the RISE Act:
Employers would be able to provide incentives to their employees to encourage more participation in a retirement plan. Incentives are limited to small, immediate compensation, such as gift cards with low-dollar amounts.
In addition, requirements for participation encouragement would be reduced. Though employers will still be required to encourage participation and send information to unenrolled employees, they won’t be required to send nearly as many informational documents annually as they have been in the past.
One of the most popular components of the RISE Act is a rule that would provide retirement benefits for more part-time workers. The bill lowers the requirement for part-time workers to participate in a sponsored retirement plan. Under current rules, part-time employees must have worked for their current employer for three continuous years before they are eligible to participate in a retirement plan. The RISE Act would lower that to two years.
One innovation from the RISE Act is a new database of retirement savings accounts, which many are calling the “lost and found” database. The purpose of the database is to help workers find information about their 401(k)s when they switch employers, and to find old accounts for which they may have lost information or access. This would be especially helpful for savers who have lost plan or login information that was stored in a work email that they no longer have access to, or for those who may have lost their sponsor’s contact information.
The bill also addresses an employer’s procedures for dealing with career changes as well. Specifically, it broadens the options that employees have for transferring the retirement accounts of former, unresponsive employees into IRAs. Currently, employers are allowed to transfer an unresponsive former employee’s retirement account into an IRA if the balance is between $1,000 and $5,000. The RISE act raises that range to between $5,000 and $7,000.
The Department of Labor (DOL) would be required to conduct multiple investigations into their procedures, update their protocols, and report their findings to congress. The protocols that must be assessed and updated include guidelines for determining the risk and return rates (also known as “benchmarking”) for a variety of asset classes.
The DOL would also have to review and update the current guidelines regarding pension risk transfers, and their current reporting and disclosure requirements for pension plans. Finally, they would be required to give guidelines for future changes and best practices.
With the current legislative focus of the last few months on the Build Back Better infrastructure bill, many other bills have been sidelined. The RISE Act/Secure Act 2.0 merged bill is no different. Because these two bills are to be merged before being presented before the full congress for a vote, there is likely to be an involved legislative process to address overlaps and potential conflicts between the contents of the bills.
One of the best ways to take advantage of new legislation is to educate yourself. The Secure 2.0 Act and the RISE Act are comprehensive bills with plenty of information, and some of the contents of the bills may change as they merge, so there are many new points and requirements to learn about.
If you’re already enrolled in an employer-sponsored retirement account like a 401(k) or 403(b), talk to your plan sponsor when and if the bill is passed. They should be able to answer questions about how your particular account is affected, if at all. If you aren’t enrolled, or if your workplace does not yet offer retirement benefits, talk to higher-ups at your workplace to see what your options are.
As legislators continue to address gaps in retirement savings among the American public, now is the time to begin seriously looking into retirement savings of your own, or making sure your portfolio is up to date if you’re already saving. If the merged Secure 2.0/RISE act passes, the world of retirement planning in the US will change, and for many Americans, the bill could mean new opportunities to save.
Give your employees more than just a 401(k), join the movement.