On March 29, the United States House of Representatives passed legislation to streamline the current retirement savings system to encourage Americans to save more and postpone withdrawals from their 401(k) plans.
The Securing a Strong Retirement Act, H.R. 2954, also referred to as the Secure Act 2.0, received approval from a bipartisan vote 414-5. The bill will now move to the Senate for consideration in April.
“The bill raises contributions limits for older workers, and lets companies offer employees a small cash bonus for signing up for the retirement plan,” The Wall Street Journal (WSJ) reported.
According to the WSJ report, the legislation will build on “retirement-policy changes enacted in 2019 that, among other things, raised the age retirees were required to start withdrawing money from retirement accounts to 72 from 70.5.”
In the new proposed legislation, the starting age for minimum distributions would be 73, rising to 74 by 2030 and 75 by 2033. That measure would allow workers extra time to help their money grow before they are required to start receiving some of it.
The legislation also changes the amount participants ages 62-64 can contribute, allowing workers to make lump contributions of up to $10,000 rather than $6,500.
The Securing a Strong Retirement Act also proposes requiring companies that are older than three years of operation with a staff of eleven or more employees to automatically enroll new hires and existing eligible workers in the company’s 401(k) plan at 3% of their salary, increasing each year until they contribute 10%. Employees will have the option of opting out or changing the contribution rate.
“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, MSN reports. “And it has some provisions that are helpful for younger savers.”
Featherngill also said that the Securing a Strong Retirement Act would allow younger workers to get an employer match on their student loan payment amount. The legislation further notes that those workers could have an employer match applied to a Roth 401(K) providing tax benefits at retirement age.
An article published by MarketPlace reported that a provision in the new bill would address abandoned retirement accounts from those who have changed jobs. A national database would be created to help workers claim lost funds.
Senior fellow at the Brookings Institution Mark Iwry told MarketPlace, “I know it’s hard to believe, but there are large amounts that have really gone missing. And the individual could be told where to find them, and that’s what this lost and found would help people do.”
Other highlighted provisions of the legislation include allowing domestic abuse survivors to withdraw up to $10,000 without penalty following the abuse for up to a year. The Securing a Strong Retirement Act also proposes increasing the Retirement Savings Contributions Credit for low-income American employees who are contributing to a plan. Additionally, the bill offers new tax incentives for small business employee stock options and tax credits for small businesses that provide plan benefits for military spouses.