Congress passed a landmark retirement security package in December, known as SECURE 2.0, which will drastically impact the future of the retirement landscape through more than 90 provisions.
Among a host of provisions, SECURE 2.0 expands automatic enrollment in 401(k) and 403(b) plans, raises the required minimum distribution age and allows employers to make matching contributions to retirement plans based on qualified student loan payments.
“From a legislative point of view, I think right now, a lot of the action will move to the regulatory agencies for implementation of SECURE 2.0,” said Melissa Kahn, Washington-based managing director of retirement policy for State Street Global Advisors‘ defined contribution team.
SECURE 2.0 passed as part of a $1.7 trillion omnibus spending bill on Dec. 23, after lawmakers’ last-minute negotiations narrowly avoided a government shutdown. The package combines three bipartisan bills from the House and Senate and builds off of the SECURE Act, which Congress passed in late 2019.
In March, House lawmakers overwhelmingly passed the Securing a Strong Retirement Act of 2022, introduced by last Congress’ Ways and Means Committee Chairman Richard Neal, D-Mass., and now retired ranking member Kevin Brady, R-Texas.
In a press call on Dec. 21, Mr. Neal said SECURE 2.0 is “a historic advance on what we were able to do just a few years ago.”
Other bills that formed the basis of SECURE 2.0 include the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act, or RISE & SHINE Act, and the Enhancing American Retirement Now Act, or EARN Act. The RISE & SHINE Act advanced out of the Senate Health, Education, Labor and Pensions Committee in June, and the EARN Act advanced out of the Senate Finance Committee in June.
“I’ve heard from so many people who had to raid savings meant for the future, not to mention countless others who have never had access to an employer-sponsored retirement plan,” said Sen. Patty Murray, D-Wash., chairwoman of the HELP Committee last Congress, in a statement after SECURE 2.0 passed. “That’s why these reforms are so important.”
While SECURE 2.0 includes a host of important changes to retirement policy, industry players highlighted a few as especially noteworthy.
One requires employers launching 401(k) and 403(b) plans to automatically enroll new workers in those plans, unless they opt out, at an initial amount of 3%, increasing by 1 percentage point annually to reach 10%. This would take effect in 2025, and existing 401(k) and 403(b) plans would not be affected.
“Automatic enrollment is essential, largely because if younger employees are given an option, they typically would prefer the money in their pocket through the pay mechanism at the end of the week,” Mr. Neal said in his December press call.
Ms. Kahn applauded the auto-enrollment feature, adding, “I think that’s a step forward in terms of increasing savings for lower-income individuals, in particular.”
SECURE 2.0 also increases the age at which plan participants are required to start taking distributions from their retirement plans. While the SECURE Act of 2019 raised the required minimum distribution age to 72, SECURE 2.0 further extends that age to 73 starting in 2023 and 75 starting in 2033.
“Particularly in an environment where you see more people working after they retire, that ability to delay RMDs is valuable,” said Drew Carrington, San Mateo, Calif.-based senior vice president and head of institutional defined contribution at Franklin Templeton Investments.
Another significant provision of SECURE 2.0 will allow for employers to make matching contributions to a 401(k) plan, 403(b) plan or SIMPLE IRA based on qualified student loan payments, starting in 2024. Both Mr. Carrington and Ms. Kahn said this is important for increasing Americans’ financial wellness.
David Stinnett, Malvern, Pa.-based head of strategic retirement consulting at Vanguard Group, said that while student loan matching is optional for employers, plan sponsors “now have an extra tool or an extra lever to pull” to try to get more participants in their plan.
Mr. Stinnett also said the bill directs the Treasury Department to issue regulations explaining how the provision will be implemented, and “once the finer details are there, I think some plan sponsors will certainly be interested in this.”
According to a Congressional Research Service report from December, nearly 43 million people, or 1 in 6 adult Americans, have federal student loan debt.
Organizations in the retirement industry have overwhelmingly applauded the passage of SECURE 2.0.
“ICI thanks the members of the House and Senate for their commitment to Americans’ retirement security,” said Eric Pan, president and CEO of the Investment Company Institute, in a statement on Dec. 23. “We welcome the passage of this vital piece of bipartisan legislation, which will improve the long-term financial well-being of Americans across the country.”
Wayne Chopus, president and CEO of the Insured Retirement Institute, said in a Dec. 23 statement, “The common-sense solutions in this legislation are another step forward in addressing our nation’s retirement crisis and will make a real difference in the financial future of America’s workers and retirees.”
“SECURE 2.0 will help strengthen Americans’ retirement readiness through provisions that will reduce barriers to annuitization, increase access to workplace retirement plans and improve opportunities to save for retirement,” said Kourtney Gibson, chief institutional client officer for TIAA-CREF, in a Dec. 23 statement.
Specifically, SECURE 2.0 reduces barriers to life annuities by amending required minimum distribution regulations, which limit their access.
While SECURE 2.0 was a major accomplishment for retirement policy, the focus now turns to what’s next, which may mean a SECURE 3.0.
“We, internally, are starting to discuss either opportunities or pain points for clients and plan participants, in particular, to see where SECURE 3.0 might go in the coming years,” said State Street Global Advisors‘ Ms. Kahn.
Franklin Templeton‘s Mr. Carrington said SECURE 3.0 is on his mind as well, adding, “We’re already starting to think about … what are the next things that we need to do? What are the next objectives that we need to tackle?”
While SECURE 2.0 is important and “really enhances the system,” the work is not done, he said, and “continuous improvement” is necessary.