Legislation that would improve the retirement savings system for U.S. workers may get a vote in the House of Representatives this week.
The House could vote on the Securing a Strong Retirement Act, or Secure Act 2.0, as early as Tuesday.
"By expanding automatic enrollment in employer provided retirement plans, simplifying rules for small businesses and helping those near retirement save more for longer, this legislation will help increase Americans' access to retirement funds and help families save for the future," House majority leader Steny Hoyer, D-Md., wrote in a Friday letter about the Secure act.
The bill builds on the first Secure Act, which was passed in 2019. In 2021, the House Ways and Means Committee approved the bill in a unanimous, bipartisan voice vote.
"It has some provisions that are pretty favorable in terms of allowing individuals to save more for retirement," said Lisa Featherngill, national director of wealth planning at Comerica Bank. "And it has some provisions that are helpful for younger savers."
Highlights of the bill
The second Secure Act has a number of provisions that would benefit retirement savers and employers.
One would require employers to automatically enroll eligible workers in 401(k) plans at a rate of 3% of salary, which would increase annually until the employee is contributing 10% of their pay. Employees could opt out or select a different contribution amount. Businesses with 10 or fewer employees or are less than 3 years old would be excluded from the mandate.
The plan would also make changes to how much savers can contribute if they're near retirement, and when retirees need to pull money from their accounts. Individuals aged 62, 63 and 64 could make catch-up contributions of $10,000, up from $6,500.
It would also increase the starting age for required minimum distributions to 73 in 2022, 74 in 2029 and 75 by 2032, up from the current 72.
Student loan borrowers would also get a retirement boost via the legislation, which would basically allow employers to match student loan payments as contributions to retirement.
"Let's say you have somebody with significant student loans and really can't contribute much to their 401(k)," said Featherngill. "This would allow them the opportunity to still get an employer match on the amount paid on their student loans."
Another potential change that could help young workers is that they would be able to elect that all or some of an employer match be applied to a Roth 401(k), which would provide a tax benefit when they get to retirement, said Featherngill.
Beyond these features, the legislation would make other changes for survivors of domestic abuse, small business owners and low-wage workers eligible for certain tax credits. It would also create a national database for Americans to reclaim lost retirement accounts.
The legislation has bipartisan support, which bodes well for its path forward. There are also other bills in Congress that overlap with the Secure Act and if passed, would make improvements to retirement saving.
The House Education and Labor Committee in February amended the RISE Act, H.R. 5891, which also addresses retirement savings plans.
There are two similar bills in the Senate that address retirement savings. One is the Retirement Security and Savings Act, S. 1770, and the other is the Improving Access to Retirement Savings Act, S. 1703.
SIGN UP: Money 101 is an 8-week learning course to financial freedom, delivered weekly to your inbox. For the Spanish version Dinero 101, click here.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.