OK, but Seriously: Is SECURE 2.0 Going to Pass?

If a budget passes, SECURE 2.0 will be attached to that bill. If a budget passes.

Passage of the retirement reform legislative package known as SECURE 2.0 hinges primarily, if not entirely, on whether Congress can pass a budget by January 3, which is not a foregone conclusion. January 3 is when the next Congress is sworn in, and any unfinished bills under consideration must be reproposed.

This Friday, the continuing resolution currently funding the federal government expires. To avoid a government shutdown, Congress must either pass a budget or another short-term continuing resolution.

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Lance Schoening, the director of policy and government relations at Principal Financial Group, explains that the budget is the target vehicle for getting SECURE 2.0 to pass. Schoening admits he is nervous about SECURE 2.0 passing this Congress and that Congress is not yet close to a final budget agreement. He considers it likely that a short-term continuing resolution will pass and that a unified and reconciled SECURE bill will be produced, but he is not certain that there will be an omnibus spending bill that supporters of SECURE can append it to.

Edward Renn, a private client and tax partner in the Withersworldwide law firm, says the differences between the three bills that make up SECURE 2.0 are relatively small, and it “amazes me that with all the bipartisan support they had that they haven’t been able to cobble it together.” As for whether it will pass at all, that “depends on who you talk to.”

Diana McDonald, a senior policy adviser at Groom Law Group, says, “SECURE is very likely to go if there is a spending bill,” but, “we don’t feel so good about the prospects of a government spending bill.” By the transitive property, this would mean she does not feel good about SECURE 2.0.

She notes, however, that congressional staffers are still communicating about various provisions in the competing bills, which they would presumably not be doing if they considered SECURE 2.0 to be a lost cause.

A budget will “probably” be passed before Christmas, and such a bill would carry SECURE 2.0 with it, McDonald says, while cautioning that nothing is certain at this time.

The most popular SECURE 2.0 provisions among industry actors are allowing 403(b) plans to use collective investment trusts; allowing employers to match student loan payments with retirement plan contributions; incentivizing plan creation with tax credits; making it easier for part-time workers to join plans; the creation of emergency savings accounts; and the creation of a plan lost-and-found.

The only provision that has received frequent pushback is a provision that is only in the House version of SECURE 2.0, the Securing a Strong Retirement Act, which would require retirement plans to send a written statement to plan participants once per year.

Renn notes that one under-examined difficulty of SECURE 2.0, if it passes, comes from administrative changes. For example, the student loan-matching provision does not explain if a plan is to verify that the participant is paying off debt or if the plan is supposed to make those payments for the participant. Auto-enrollment features contain an option to opt-out, but it is not clear whose responsibility it is to inform participants of this option.

These issues would have to be worked out later, if SECURE 2.0 passes at all.

Public-Sector Workers Face Retirement Income Shortfalls Without Supplemental Savings

National Institute on Retirement Security research finds pension plans alone often don’t provide retirement income adequacy for state and local government employees.

Longer lives, rising health care costs, and wages not keeping up with inflation mean that even public-sector workers retiring with a defined benefit plan, Social Security and a retiree medical benefit could fall short of retirement income adequacy without adding supplemental savings, new research found.

The National Institute on Retirement Security report, “The Real Deal for the Public Sector: Retirement Income Adequacy Among U.S. Public Sector Employees,” investigated the individual retirement income shortfall or surplus for participants of the average public defined benefit plan, considering whether they pay into Social Security and/or are offered a retiree medical plan. The nonprofit’s research was published in partnership with Aon.

“The prevalence of [defined benefit] plans in the public sector has led to a perception that most public employees are set for retirement,” the report’s authors wrote. “But in reality, even those workers with strong pension benefits may fall short of achieving retirement income adequacy according to their individual retirement needs.”

The researchers found that a public-sector worker with a pension, who also pays into Social Security and has access to a retiree medical plan, will need to save 4% to 6% of pay annually to fund an adequate retirement.

“While the combination of Social Security, a pension and retiree medical benefits covers much of an employee’s needs at retirement, that combination alone is not sufficient to meet total needs,” the paper stated. “If offered a supplemental DC savings plan through their employer, such as a 457 plan, the average public sector employee should strongly consider setting aside additional savings for retirement.”

The research paper calculated, for an average pension beneficiary who retired at age 62, their average target needs—the sum of money they need at retirement to last through their retirement years—as 20.8 times their final pay. However, in that scenario, the workers’ defined benefit plan, along with Social Security and the retiree medical plan, are estimated to provide, on average, retirement resources equal to 18.7 times their final pay, data shows.

“[The report] illustrates the growing challenge of retirement,” said Dan Doonan, executive director of the NIRS, in a press release. “With longer lives, health-care costs increasing faster than wages and more modest expectations of investment markets, even workers with a [defined benefit] plan would be wise to have additional resources to shore up a secure retirement.”

For a worker in this scenario, the defined benefit plan covers 10.3 times final pay; Social Security 5.1 times final pay; and retiree medical covers 3.3 times final pay, the research found.

The researchers defined retirement income as adequate when retirement resources meet or exceed retirement needs.

Because the rate of health care inflation is “markedly higher than general price inflation,” the report included health-care costs as among the emerging retirement challenges for pension beneficiaries.

“Rising costs are a major culprit, particularly health-care costs, and this means that public employees must save more on their own to ensure a secure retirement,” the authors wrote. “Fortunately, most public employers offer a range of supplemental savings programs that help set aside additional money for retirement.”

Workers with less generous benefits, including women and younger workers, are likely to face more acute challenges, Doonan said.

Shortfalls for certain public safety workers could be more severe, the research found.

“Public safety employees, particularly police officers and firefighters, typically have fewer working years and more retirement years than a general government employee, which means more resources are necessary per year worked,” stated the report. “A firefighter may only have a 20-year career and then retire from the profession in their late 40s or early 50s. While they are likely to pursue a second career after leaving firefighting, plan sponsors should consider how the baseline DB plan modeled here could be adjusted to provide retirement income adequacy to these categories of workers with fewer working years in a public DB plan.”

Aon and the NIRS will present the report’s full findings during a webinar Thursday.  

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