The proposals have broad, bipartisan support and a clear path forward, experts say. If the senators manage to agree on their ideas in a short package, President Joe Biden could sign the changes to the law before the August vacation in Congress.
Here’s a look at the changes that are being considered.
Last month, Congress almost unanimously passed SECURE 2.0, a bill that makes major changes to the 401 (k) and 403 (b) rules for dealing with the impending pension crisis in America. (By 2030, about 21% of the country’s population will be 65 or older, and only 36% of adults believe their savings are on the way.)
The bill would:
- Require employers to automatically enroll all eligible workers in their retirement plans at a savings rate of 3% of salary. (Many employees currently have to get involved and then choose their level of contributions.) The contribution rates of registered workers will automatically increase by 1% each year until their contributions reach 10% per year.
- Allow workers between the ages of 62 and 64 to increase their 401 (k) and 403 (b) catch-up contributions to $ 10,000 per year, from $ 6,500 now. From 2023, these catch-up contributions will be taxed as Roth contributions, which means that they will be taxed before they are invested in retirement, although revenues will be indexed to inflation.
- Allow employers to treat student loan payments as eligible deferrals of the retirement account and provide an appropriate contribution.
- Increase the minimum age at which subscribers must start withdrawing money from their employer-sponsored retirement accounts each year to 75 out of 72.
- Require employers to allow part-time employees who work at least 500 hours a year for two years (equivalent to just under 10 hours a week) to contribute to their retirement account.
The bill is already in the Senate, which proposes changes:
The Cardin-Portman bill
U.S. Senators Rob Portman, an Ohio Republican, and Ben Cardin, a Maryland Democrat who have worked together on retirement issues for years, recently unveiled their Pensions and Savings Act (S.1770), which significantly overlaps with the SECURE Act. 2.0 of the House of Representatives. Senators would like their plan to be at the heart of the Senate accompanying bill, but there are some big differences: there is no provision for automatic registration, for example. The House of Representatives bill will increase the required minimum age for the distribution of 401 (k) funds to 73, starting in 2022, 74, starting in 2029, and 75, starting in 2032. The Cardin-Portman plan will increase the age of 75 in 2032 without the intervening steps. The House plan will increase catch-up contributions, but employees will pay taxes before paying; Cardin and Portman’s plan does not require this.
The Murray-Bur bill
During a Senate hearing on retirement savings last month, committee chair Patti Murray said she and Republican Sen. Richard Burr are working to create another pension package that will move to the floor “later this spring.”
“It is very clear that we need to do more to strengthen emergency savings and people’s pension security,” Murray said.
The bill has not yet been written, but analysts say it will omit the provision for automatic subscription, although it will include incentives to encourage companies to implement this feature on their own.
This Senate bill will be based on the House of Representatives’ Retirement and Savings Enhancement Act (RISE), which was expanded and folded into the SECURE 2.0 Act. Murray said her bill would focus on providing new options for emergency savings, promote automatic re-registration and help people find “lost” retirement accounts.
The bill could also boost disclosure of benefits and encourage retirement plans to include annuities, a tool that allows investors to make a series of payments to an insurance company that regularly pays them a certain amount in the future.
The Starter-K Act
In April, Senators Tom Carper and John Barasso introduced legislation called The Starter-K Act of 2022, which aims to expand access to retirement savings plans.
Currently, only half of small businesses with less than 50 employees in the United States provide a retirement plan for their employees. Their plan will create “starter” plans for pension contributions with streamlined regulations that reduce costs for small businesses and start-ups that sign up. Employees of participating companies will be automatically enrolled and could save up to $ 6,000 a year.
Assembling the parts together
The Senate has something to consider as it moves forward, but there is a bipartisan agreement that change must happen: nearly 70% of private industry workers have access to a 401 (k) account, but only 50% use it and less than 40% of lower paid workers have some kind of pension account at all.
What happens next is the story of two bills: the Senate Finance Committee will mark the Kadrin-Portman bill, and the Senate Committee on Finance and Health, Education, Labor and Pensions will mark the Murray-Bur bill. Provisions such as the Starter-K Act may be added to the plans during these mark-ups. Ultimately, the two committees will work to merge their plans into one that will go to the Senate to vote.
The plan would then go to a committee where the House of Representatives and the Senate would eliminate any differences before sending President Joe Biden’s final bill for signature.
The Senate may vote on the plan before the August break, said Angela Montez, a special adviser at Eversheds Sutherland, which focuses on pension and investment policy.
“We are focusing on intermediate sessions and people will want to have an achievement to promote,” she said. “It’s a good package for people to run to.”
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