SECURE Act 2.0 Could Be a Game Changer for Retirement Planning

Syed Nishat, with Wall Street Alliance Group, discusses anticipated changes from retirement plan legislation introduced at the end of last year.

After the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act in late 2019, many in the retirement plan industry expected that further legislation was to come.

A bill nicknamed the “SECURE Act 2.0” is already in the works, and while it will likely undergo many changes until it emerges in its final form, policies like this tend to have bipartisan support, as lawmakers prioritize retirement laws and helping their constituents set themselves up for their future. The bill includes many provisions that could affect plan sponsors.

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Taking up where the SECURE Act left off, the new bill, called the Securing a Strong Retirement Act of 2020, was introduced in October. It takes into consideration the economic struggles people have experienced during the pandemic; unsurprisingly, contributions to retirement plans lessened and, in some cases, dropped completely last year. The new bill aims to alleviate what lawmakers believe was an ongoing crisis for those saving for retirement, which was further exacerbated by the financial beatdown that COVID-19 served to people individually and to the economy as a whole. It seeks to make it easier for workers to save for retirement by helping them begin earlier without undue financial stress, while also making provisions for those who are nearing retirement age. Here are some of the key points in the bill as it looks right now:

Finally, help with student loans: The bill would allow those with student loans to make payments toward their loans in place of contributions to their defined contribution (DC) plans and still receive an employer match. This way, workers would be paying off debt while saving for retirement at the same time, rather than having to choose how to stretch their dollars.

Automatic enrollment: To make it simpler for workers to start saving for retirement, the bill would require auto-enrollment for participants in new DC plans. This would mean an initial contribution rate of at least 3%, which would increase automatically by 1% annually until reaching 10%.

Required minimum distributions (RMDs): Individuals with retirement account balances of $100,000 or less would have exemptions from the RMD requirement.

Higher age for RMDs: Building on the higher RMD age of 72 that was established in the SECURE Act, the bill would again raise the RMD age to 75 for DC plans and individual retirement accounts (IRAs). This allows savings to grow longer, meaning there is more money available once withdrawals must begin.

Increased catch-up contributions: The bill would increase limits on catch-up contributions for those who are making extra deferrals as they draw closer to retirement. This would affect workers who are 60 or older, and the new limits would be $10,000 for 401(k) and 403(b) plans (up from $6,500) and $5,000 for participants in SIMPLE [savings incentive match plan for employees] IRAs (up from $3,000). This allows older investors to contribute more pre-tax dollars to help them be more aggressive in preparing for a quickly approaching retirement.

Credit for establishing a retirement plan: To encourage small businesses to establish retirement plans, the bill would offer a new credit which would offset up to $1,000 of employer contributions per employee. The credit would be offered to businesses with 100 or fewer employees and would phase out over five years.

CITs in 403(b)s: To help them reduce costs, 403(b) plans would be allowed to invest in collective investment trusts (CITs).

Helping participants keep/find their savings: There are several provisions to protect individuals saving for retirement while looking out for their financial well-being, including protecting retirees who receive plan overpayments or taxpayers who have made accidental errors in managing their IRAs from fees and other penalties, as well as the creation of a national online database of lost accounts to help employees find savings held at businesses at which they’re no longer employed.

More credit for middle-income workers: In addition to increasing public awareness of the Saver’s Credit, the new legislation aims to improve it as well. This tax credit exists specifically to help low- and moderate-income workers by offering them a credit of between 10% and 50% of their saved retirement amount, depending on income level. The new bill would establish a single 50% credit, raise the maximum income amount a worker can make while still qualifying, and increase the credit’s maximum from $1,000 to $1,500.

Increase in qualified charitable distributions (QCDs): The bill would increase the annual limit on QCDs. These are distributions from an IRA that go directly to a charitable organization, and they count toward RMDs. If an individual doesn’t need the RMD, he can avoid paying taxes on it by giving it to charity. The annual limit would increase from $100,000 to $130,000 annually.

As with the original SECURE Act, SECURE 2.0 has bipartisan interest and support, so it’s very likely that it will be signed into law, with some adjustments, early this year. Plan sponsors should be prepared for these changes to retirement law and discuss them with an experienced financial adviser.

Syed Nishat is a partner at Wall Street Alliance Group. He holds a bachelor’s degree in business administration from University of Nevada Reno. Syed holds the FINRA Series 7, FINRA Series 63 and FINRA Series 66 licenses, along with licenses for life, disability and long-term care insurance. He also has been awarded the Behavioral Financial Advisor (BFA) designation.

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This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services or its affiliates.

Higher Ed Institutions Facing Increased Turnover Due to Burnout During Pandemic

Plan sponsors can use benefit offerings to decrease their staff’s constant struggle with work/life balance and offer transition help to those who insist on retiring.

Higher education institutions are experiencing a higher rate of turnover as professors and employees leave the workforce due to growing burnout aggravated by the COVID-19 pandemic.

A new Transamerica report finds the pivot to online education in the past year has augmented employee turnover, as 35% of higher education institutions report higher movement within their employee base. Thirty-three percent of institutions disclosed they are facing higher student-to-faculty ratios.

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The turnover is likely due to employees struggling with their work/life balances in the past year, which can then bring on career dissatisfaction among workers. According to a recent study by Fidelity Investments that surveyed 1,100 faculty members, more than half (55%) of faculty at higher education institutions have seriously considered changing careers or retiring early, including 35% of tenured employees. Sixty-nine percent of faculty said they felt stressed last year, compared with 32% in 2019, while 35% felt angry in comparison to just 12% in 2019.

“There has been a lot of discussion about the impact on the student experience, but our questions were on the faculty who play such a critical role,” says Debra Frey, head of tax-exempt marketing and analytics at Fidelity Investments. “We were surprised to see the level of stress that many faculty members reported. A lot of that is due to feeling overworked, seeing workload increase and really as work/life balance gets worse due to that stress.”

Such a change brings adverse effects to higher education institutions, Frey notes, especially since colleges and universities often tout strong faculties to attract potential students. “Institutions are making sure they have the best talent—a diverse and strong representative workforce,” Frey says. “As you see some of these important faculty members choose to leave, the question becomes ‘How do I look at this impact and find a solution?’”

This question is especially important for retaining female faculty members, who have been disproportionately impacted by the pandemic, as many reported feeling overworked and overwhelmed, according to Fidelity. Seventy-five percent of female faculty members reported feeling stressed, and 82% said their workload had increased as a result of the pandemic, compared to 70% of their male colleagues. Additionally, 74% indicated their work/life balance had deteriorated in 2020.

Throughout the pandemic, women have fared worse than their male counterparts and often been forced to juggle more. Because two out of every three caregivers in the United States are women, many women are forced to leave their careers. In September, the Bureau of Labor Statistics (BLS) reported 865,000 women had left the workforce.

“Like so many of us with challenges, they are either dealing with changes in child care and elder care or worrying about families and themselves, but also facing a dramatically changing professional experience,” Frey says.

To keep this workforce, institutions need to react and adapt based on their faculty’s needs. Start with acknowledging what your institution demands, Frey suggests.

“We are seeing colleges and universities reassess what they offer and looking at a total well-being perspective. They’re asking, ‘Are we providing access to things that will help mental health and well-being incentives? For professionals struggling with child care needs, do we offer backup child care services?’” she says.

On the retirement front, Wendy Daniels, vice president and not-for-profit practice leader at Transamerica, recommends employers and their retirement plan providers offer services to help faculty transition from full- or part-time work to retirement. According to the Transamerica study, 36% of institutions are extremely concerned that their faculty is unaware of the amount they’ll need for retirement.

“If faculty or staff are considering leaving the education system or retiring early, plan sponsors can help provide insight on issues participants may not have considered,” Daniels says. “Helping participants understand how to transition into retirement and creating a sustainable retirement income strategy are key.” She says sponsors should also stress health care costs in retirement and make sure their employees understand Social Security and Medicare programs.

Placing a greater emphasis on financial wellness tools and communications will also help employees and could help prevent high turnover rates. If a plan’s participants decreased or stopped contributing to the retirement plan or took a loan or distribution over the past year, sponsors would benefit from having a strategy to get them back on track, Daniels says. “Along with enhanced financial wellness programs, employers should also reinforce any employee benefits that may be available to ensure faculty and staff have the benefits they need to protect their savings from unexpected life events,” she says.

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