Congress just passed Secure Act 2.0 by an overwhelming majority, 414 to 5, in the U.S. House of Representatives.

Most notably, the bill, passed last Wednesday, March 29, 2022, would raise the age at which the government requires retirement savers in 401(k)s and other tax qualified plans to begin drawing down their assets, from age 72 to age 75. That would give those with retirement accounts an additional three years to grow their portfolios tax free.

Universal Autoenrollment

The bill also encourages more companies to offer auto enrollment, and even permits employers to offer cash bonuses to workers who sign up for retirement plans, among several other provisions.

Secure Act 2.0 would gradually raise required minimum distributions (RMDs) from their current age 72 to 73 next year, 74 in 2030 and 75 in 2033. Another provision in the bill is raised contribution limits for seniors.

Mark Iwry, a senior fellow at the Brookings Institute, tells The Wall Street Journal that the advantages “feel like a tax cut,” at least in the short term.

In the long term, however, there are concerns that the law may cause higher tax bills once the RMDs kick in, if taxes increase in the interim. Ed Slott, an individual retirement account (IRA) expert and author of Stay Rich for Life, tells The Journal that raising RMDs “sounds better than it is,” further adding that 80% of people subject to mandatory retirement withdrawals end up taking out more cash out of their requirements than the RMDs due to money constraints.

The bill would also allow seniors in the workforce to contribute more into their retirement accounts. It would raise the so-called 401(k) “catch-up” amount for those aged 50 and from the extra $6,500 to $10,000, for those 62-64, beginning in 2024.

Two more perks of the bill are that it would allow employers to give matching contributions into employees’ Roth accounts, and it would make automatic enrollment in retirement savings plans mandatory in 2024 for newly created plans.

Proponents are especially enthusiastic about making automatic enrollment for employees mandatory because it would substantially boost participation rates, particularly for those without existing retirement accounts right now.

Surprisingly, 36% of American workers have never had a retirement account, including an IRA or 401(k), per a November 2021 Bankrate survey, and 25% of Americans have no retirement savings at all.

The Secure Act 2.0 would allow employers to make matching contributions to 401(k)s for employees paying down student loan debt. TIAA was the first company in the United States to petition the IRS, in 2018, to offer this perk to its employees. The news comes as Americans have over $1.73 trillion in student debt, a record high, per CNBC.

The bill would also “seek to encourage people with low and moderate incomes to save in retirement accounts by raising the saver’s credit,” an occasionally underused matching program from the U.S. Government, which would begin in 2027.

Any relief for lower and moderate-income employees is sorely needed in their retirement savings accounts, as the same aforementioned Bankrate survey showed a majority of households making under $100,000 annually were more likely to report being behind in saving for retirement, including 52% earning between $50,000 and $100,000 a year.

'Robust Legislation'

In an interview with Newsmax Finance, Joe DeBello, managing consultant of the retirement plan services team at OneDigital, says he supports Secure Act 2.0. “The piece of legislation is extremely robust; there are a lot of moving parts,” DeBello says. “Pooled employer plans and changes to the tax credit are good steps in the right direction. By and large, the changes are beneficial for the public and retirement security.”

Like other analysts, DeBello is especially pleased by the prospect of making automatic enrollment a requirement for all workers, as he hopes this will close the coverage gap, especially for minority groups.

“Sixty-eight percent of Latino employees and 52% of African American employees lack access to a retirement plan, according to The Urban Institute, compared to 40% of white employees lacking access to a retirement plan,” DeBello says, “so, bridging the coverage gap is very important. Two-thirds of Latino and 56% of Black families have no retirement savings, compared to 35% of white families.” DeBello is fairly confident that auto enrollment will narrow those coverage gaps.

“Workers are 12 times more likely to save in a workplace plan than to save on their own, as employer matching and auto enrollment can best incentivize saving,” DeBello continues. “Auto enrollment gets employees into a plan, and providing tax credits, even state mandates as well, is ultimately the direction we are likely to go.”

Finally, DeBello adds how the Secure Act 2.0 can help both employees seeking to pay down their student loans and save for retirement simultaneously. “Employers understand student loans are a significant burden, and Gen X and the Boomers have lots of student debt.” It is not just a burden for the younger set, DeBello says.

Rather, he says, “it is a multigenerational issue. What we want to avoid is not people shunning their retirement account when paying off debt. It’s really important that employees have dollars going into their accounts at the earliest stage possible. And this bill allows employers to implement that plan design,” referring to the matching provision in the bill for student loan borrowers.