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How would SECURE 2.0 increase retirement savings?

On Behalf of | Apr 21, 2022 | Employee Benefits & ERISA

Congress is currently considering a new version of the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The new version, the Securing a Strong Retirement Act of 2022 (known as SECURE 2.0), is intended to help more Americans take advantage of employer-sponsored retirement plans and earmark more money from their paychecks for retirement.

The legislation, which has already passed in the U.S. House of Representatives, is now in the hands of the Senate. While that body could make changes to the legislation, let’s look at what the Bill as currently drafted would do.

Automatic enrollment in a retirement savings plan

The legislation would require that most employers set employees up to have a 3% deduction from their paycheck go into a 401(k) or 403(b) retirement plan. Employees who don’t want to join the plan would have to take the step to opt out. Employees also may choose to increase or decrease their deductions.

Earlier access to a retirement plan for part-time employees

The Bill would allow part-time employees to have access to an employer-sponsored retirement plan sooner. Companies that offer a 401(k) plan would be required to allow employees who have put in at least 500 hours annually for two years in a row to participate in the plan. That’s a decrease from the current requirement of three years.

Some other elements of the legislation

SECURE 2.0 would also allow employees over 50 to make additional “catch-up” contributions to their plans. Further, employers could help their employees with their student loan debt by making matching contributions to their retirement plans based on the amount of their student loan payments rather than a percentage of their paycheck.

The legislation would also make some changes to required minimum distributions (RMD) from retirement plans to allow people to wait a little longer before withdrawing funds. It would gradually increase the age at which you must take distributions and lessen the penalty for those who don’t.

The Employee Retirement Income Security Act (ERISA) regulates employer-sponsored retirement plans. It provides protection for workers who place a portion of their hard-earned money in such plans. If an employer and those managing the plan aren’t abiding by those regulations or their fiduciary duty to plan participants, there are legal options available for employees.