Towards a Secure 2.0 Workplace Retirement Savings Package: A State of the Art and a First Look at Some Recent Senate and House Budget Resulting Resolutions
The House already passed its own version of retirement plan rule changes, and two key Senate committees passed their own versions. Since the summer, lawmakers have been trying to stitch the three bills together into one large package known as Secure 2.0.
If a package is attached to a spending bill before the holidays, it may be voted on by both chambers in Congress. The new Congress may be able to agree on a bill, but it will likely have to be put back into place again next year.
In a statement, Cardin said the final bill is close to being agreed upon by both houses. “But the question is what vehicle will get it across the finish line. We absolutely need to ensure it is a priority.”
While the details are still under wraps and no legislative language has been released, here’s a look at seven of the savings provisions very likely to make it into any final retirement package, according to two retirement policy experts who have been following the process closely — Chris Spence, head of federal government relations at TIAA; and Brigen Winters, a principal and policy practice chair at the law firm Groom Law Group.
Employers starting new workplace retirement savings plans could be required to automatically enroll employees in the plan. It is optional for employers to do that. It would then be up to the employee to actively opt out if they don’t wish to participate.
The Secure 2.0 provision would require employers set a default contribution rate of at least 3% but not more than 10% for the employee plus an automatic contribution escalation of 1% per year up to a maximum contribution rate of at least 10% but not more than 15%.
TIAA, one of the largest US retirement service providers, said that SECURE 2.0 would help increase savings, ensure more access to workplace retirement plans, and provide more workers with an opportunity to receive a secure stream of income in retirement.
Using Tax Credits to Increase the Refundable Contributions of Individuals to IRAs and 401(k)s in the Age of Retirement
You used to have to start withdrawing a minimum amount from your 401(k) or IRA when you turned 70. Then, the age moved up to 72. If you don’t want to tap your retirement savings until age 75, the latest legislation will let you do that.
One option would allow you to make a penalty-free withdrawal for emergencies. Winters said the employee could get the amount they withdrew back if they repaid it within three years.
Another might let an employer add a “sidecar account” to an employee’s retirement account, where the employee can contribute after-tax money explicitly for emergencies, Spence said. That money could be taken directly from their paycheck, just as their 401(k) contributions are.
If you are 50 years of age or older, you could add an additional $6,500 to your 401(k) account on top of the federal limit. Under the retirement package, those between ages 60 and 64 (the final range may be narrower) may be allowed to contribute $10,000, instead of $6,500.
To help pay for the cost of the retirement package, however, another provision which would go into effect a year earlier would require anyone with compensation over $145,000 to “Rothify” their catch-up contributions. So, instead of making before-tax contributions up to the catch-up limit, you could still contribute the same amount but you would be taxed on it in the same year. Your contribution would grow tax free, and you could withdraw it tax free in retirement. The original catch-up contribution would be taxed by the federal government.
An underutilized federal match exists for lower-income earners’ retirement contributions of up to $2,000 a year. The new package would enhance and simplify the so-called Saver’s Credit so more people could use it. Eligible filers (e.g., married couples making $71,000 or less) could get a matching contribution from the federal government worth up to 50% of their savings, but the match cannot exceed $1,000.
Tax credits reduce your tax liability dollar for dollar. But refundable tax credits mean the filer will get the money even if they had no income tax liability to reduce.
Three Years of Work Experience with a Workplace Retirement Package: What Happens if Workers Retire Early in the Workplace? (A Comment on “Woman’s Retirement Plan”)
If they have at least three years of service and 500 hours a year of work, they should be able to participate in a workplace retirement plan. The new package likely would reduce that service time to two years.
After the three-year repayment period ends they would have to make another emergency withdrawal, if they didn’t repay the withdrawal.