In 2019, Congress passed and then-President Trump signed the SECURE Act, which instituted a range of changes to the country's retirement system. It included provisions to help get more part-time workers to save and improved access to annuities.
That bill represented the first major retirement legislation since 2006. Now lawmakers are looking to move much quicker in following up with a retirement bill informally being called SECURE Act 2.0 making its way through Congress.
The bill, officially called the Securing a Strong Retirement Act of 2021, cleared the House Ways and Means committee in a hearing Wednesday and is now before the full House of Representatives. Proponents are hoping for a full House vote in the coming weeks.
The bill is “building on the success of the SECURE act,” said Rep. Richard Neal (D., Mass.), chairman of the House Ways and Means at a hearing on Wednesday. He said that the provisions will “make it easier for the American family to prepare for a financially secure retirement."
The legislation is sponsored by both Neal and the Republican ranking member, Rep. Kevin Brady (R., Tex.), and has support from different groups like the AARP, many of whom wrote letter to the committee offering supportive words. Ahead of Wednesday’s hearing, David Abbey, deputy general counsel at the Investment Company Institute, said the bill “will help American workers better plan and invest for their retirement.”
The bill is expected to have bipartisan support in the Senate as well. Secure Act 2.0 would need to be considered in the upper chamber before heading to President Biden for his signature later this year.
Here are a few ways the legislation will change the way Americans save for retirement.
Required minimum disbursements
A key provision raises the age people must start taking mandatory distributions in private retirement plans (401(k) plans and IRAs). The SECURE Act increased the required minimum distribution age to 72, from 70. The new bill lifts it to 75.
Proponents note it will give retirees – who are living longer than previous generations – more flexibility as they manage a longer retirement.
The legislation also exempts retirees from minimum distributions for the rest of their life if they have less than $100,000 in all of their retirement plans at age 75. (As it stands now, when you reach age 72, you're required to withdraw a certain amount of money from your retirement accounts each year and pay taxes on that amount.)
The coronavirus stimulus bill passed last March allowed retirees to skip their minimum distributions that year if they desired.
Some lawmakers want to take it even further: “My goal is to get rid of it completely,” Brady said of the age restriction in a recent appearance at the Bipartisan Policy Center Solutions Summit streamed on Yahoo Finance.
Another significant measure would push employers to automatically enroll new employees in the company’s retirement plan, if one is offered. Employees could opt out, but the default would be enrollment.
"It's an embarrassment that we don't have that yet," Christian Weller, a professor at the University of Massachusetts, told Yahoo Finance recently about automatic enrollment. (Studies have shown that employers with auto-enrollment retirement plans have higher rates of participation.)
At Wednesday’s hearing, Neal touted the provision, saying it would help move toward his goal of “enrollment for all.” Brady added that the bill will help workers save earlier and he also touted provisions that would allow employers to help their workers pay back student loans while also saving for retirement.
The idea is to allow individuals to pay down student debt instead of contributing to a 401(k) plan, but at the same time get an employer match in their retirement plan.
One-third of private sector workers currently don’t have access to a retirement plan at work, so the change would not necessarily impact them and further exceptions could blunt the impact on current retirement plans that are grandfathered in or certain businesses that can receive exemptions from the new requirement.
Some advocates argue that Washington should go further and consider creating some sort of national retirement option for workers who don’t have access to a plan through their jobs. State-level IRA plans have been gaining traction around the country but the coverage only applies so far to the few states that have opted to set up such programs.
Other provisions in the bill include changes to the SAVERS credit, which lets certain lower-income workers get additional tax breaks when they save for retirement. This change would simplify the program and index the credit to inflation.
The bill also provides a "clearinghouse" for employees to find lost retirement accounts through a national database. Recent studies have found that tens of thousands of retirement plans go unclaimed when workers move from company to company and lose track. The bill would also help workers who move from state to state who participated in different state-level plans.
There are also provisions in the bill to help workers older than 50 to catch up on contributions. The provisions would increase the catch-up amounts and also index the allowed amounts to inflation.
Like the SECURE Act, Secure 2.0 moderates changes to the private retirement system but doesn’t address the more challenging issue of Social Security, which could run low on funds as early as 2031.
Another contentious retirement issue is multi-employer pensions. The American Rescue Plan passed earlier this year included $86 billion to help shore up some of those troubled retirement plans.
Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.