Embedded in the $1.7 trillion 2023 government spending bill that lawmakers unveiled Tuesday are a series of significant reforms designed to help Americans save more for retirement.
That includes raising the age for required minimum payouts from pension plans to push companies to enroll more employees in plans. The bill also includes ideas that could help younger people save more earlier in life.
The measures – which start on page 2,046 of the massive 4,155-page bill – mean the long-delayed pension reform legislation known as SECURE 2.0 is likely on its way to becoming law as early as this weekend and would start to become law to deal with what is becoming a US retirement savings crisis
“Americans deserve a dignified retirement after decades of hard work, and our bill is an important step forward,” Senate Finance Committee Chairman Ron Wyden (D-OR) said in a statement Tuesday. Wyden was alongside Sen Mike Crapo (R-ID), Rep. Richard Neal (D-MA), Rep. Kevin Brady (R-TX) and others.
“These are reforms that will make a significant difference for workers who have struggled to save,” Wyden added.
Visitors to the US Capitol in Washington in September. (Portal/Elizabeth Frantz)
Adds Paul Richman of the Insured Retirement Institute, “Congress stands ready to help millions more workers and retirees with significant improvements to the nation’s private pension system [and] will add billions to retirement savings for small businesses, part-time workers, employees with student loan debt, military spouses, low-income workers and others.”
The massive total bill is also set to fund the government through 2023 and comes with a number of other notable measures such as:
What the bill would do
In a note Tuesday morning, Brian Gardner, Stifel’s Chief Washington Policy Strategist, explained how “the law would expand retirement-saving options by allowing for a deferral of mandatory withdrawals, an increased catch-up contribution to 401(k) plans, and new options for small businesses.” enables companies to offer retirement plans to their employees.”
The story goes on
The bill is a follow-up to the SECURE Act of 2019, which was the first major pension law since 2006 and was two years in the works.
Senate Finance Committee Chair Sen. Ron Wyden (D-OR) and Senior Member Sen. Mike Crapo (R-ID) during a hearing in March. (Drew Angerer/Getty Images)
An overarching goal of the likely new law is a variety of ways to nudge companies to get more people into pension plans.
One front is new incentives centered around automatic enrollment in retirement plans. The new rules would encourage employers to automatically enroll their new hires into the company’s retirement plan as part of the onboarding process. Studies have shown that employers with auto-enrollment plans have much higher participation rates.
Other areas of focus include making it easier for small businesses – which have difficulty offering plans because of their size – to offer retirement plans. It would also allow more part-time workers at companies of all sizes to sign up.
Another important part of the bill would change the age at which people must begin receiving mandatory payouts from their private pension plans. The SECURE Act raised the required minimum age for distribution from 70 to 72. Now the age requirement would be raised again to 73 from Jan. 1, 2023, and then to 75 by 2033, under the spending law introduced on Tuesday.
The bill also increases the so-called “catch-up contributions” allowed for savers aged 62 to 64.
(LR) Mildred Kerrigan, 97, and her son Kevin Kerrigan, 65, who is visiting from Westchester, NY, drive a golf cart amid coronavirus-related event cancellations at Brownwood Paddock Square in The Villages, Florida, USA before the upcoming Democrats Elementary School, March 15, 2020. Portal/Yana Paskova
The plan also includes a novel idea of treating student loans as deferrals for retirement purposes. This means that student loans and savings for retirement could be effectively linked if an employer chooses and offers a plan that allows an employee to put some money aside for retirement while tackling more pressing financial issues.
There are similar provisions that could link retirement and emergency savings in the years to come.
“There are some people who have been left on the sidelines in the retirement savings game,” Kathleen Coulombe, vice president of the American Council of Life Insurers, recently told Yahoo Finance Live. Representing one of many groups hoping to get the bill across the finish line, she added, “It’s really trying to help a lot of these vulnerable populations.”
Other changes include updates to the SAVERS balance, which gives certain lower-income workers additional tax breaks when they save for retirement, and the creation of a “clearing house” for employees to find lost retirement accounts.
What the bill doesn’t address is the challenge facing Social Security, which could run out of funds as early as 2034. The bill has its critics, with some noting that many of the reforms would be better and more effective if accompanied by changes to the social safety net program. But lawmakers have long been wary of changes to Social Security itself, which is often referred to as “the third rail of American politics.”
Next Steps
Experts are still poring over the provisions — which run to hundreds of pages — but the bill looks set to change the retirement landscape in the years to come, with some provisions taking effect as early as January 1, 2023.
The Senate comes first and could vote on the overall measure as early as Wednesday. That move will be the big test of the entire package, as it will need at least 10 Senate Republicans to join Democrats to pass the effort.
On Tuesday morning, the office of Senate Minority Leader Mitch McConnell issued a press release offering words of support for the overall deal — and making passage more likely — saying that the overall deal “is consistent with … conservative policies.”
If it passes the Senate, the massive spending measure would go to the House of Representatives, followed by President Biden’s desk. The measure is urgent as lawmakers rush to have it completed before Friday – both to stave off a government shutdown and to get home for Christmas.
Ben Vershkul is the Washington correspondent for Yahoo Finance.
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