Washington Insiders Offer Timeline Update on SECURE 2.0

Comprehensive retirement reform is expected to pass this year and is intended to increase access to retirement accounts.

Several Washington insiders say the package of three retirement reform bills, known as “SECURE 2.0,” are expected to be consolidated and passed sometime this December, adding to 2019 legislation aimed at increasing retirement plan access and savings in the U.S.

Two of the three bills, the Enhancing American Retirement Now (EARN) Act, and the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg (Rise and Shine) Act were advanced out of the Senate Finance and Health, Education, Labor and Pensions committees respectively, in June, by unanimous votes.

Get more!  Sign up for PLANSPONSOR newsletters.

The third, the Securing a Strong Retirement Act was passed by the House in May, on a vote of 414 to 5.

The original SECURE Act was the Setting Every Community Up for Retirement Enhancement Act of 2019.

Industry experts and Washington insiders expect the latest legislation to be consolidated into a single bill and passed sometime in December, during the lame duck period before the new Congress is sworn in next year. The final bill would likely be attached to must-pass legislation, such as a funding bill to replace the current continuing budget resolution that expires on December 16. Though there are many differences between the three bills, none are likely to prevent final passage, sources said.

Two or more of the new bills share 39 provisions, which observers say are the provisions most likely to survive into the final package in more or less the same form. Some key examples of provisions that are present in multiple bills are:

  • Reducing the number of years of service after which part-time employees must be made eligible for an employer-sponsored retirement plan will be reduced to two from three (all three bills).
  • Employers may match employee student loan payments with retirement plan contributions (SSRA and EARN).
  • Victims of domestic abuse may withdraw the lesser of $10,000 or 50% of the total value of their account without a tax penalty (SSRA and EARN).
  • An employee has the option to designate employer contributions as after-tax income, to be taxed in the current tax year, instead of when it is withdrawn (SSRA and EARN).

The bills also include some points of disagreement, such as different timetables for catch-up contribution changes and required minimum distribution changes, and whether auto-enrollment into employer-sponsored retirement plans should be required or incentivized with tax credits.

There are also some provisions that only exist in any form in just one bill. For example, only the EARN Act provides for the following:

  • Creates permanent rules for early withdrawals as a result of a disaster, allowing up to $22,000 to be withdrawn without penalty.
  • Allows for starter 401(k)s, or plans that deduct from an employee’s pay without an employer match, for small businesses.

Senators Ben Cardin, D-Maryland, and Rob Portman, R-Ohio, published an op-ed in the Hill last week calling for SECURE 2.0 to pass this year, and expressed optimism that it would. They supported certain provisions found in the EARN Act, the Senate Finance Committee’s version. In particular they highlighted the student loan match, an expanded saver’s tax credit, a national plan database or “lost and found” to help participants find and retrieve retirement contributions, and increased tax credits for small businesses to incentivize employers creating retirement plans.

The op-ed cited an AARP study which noted that only 17% of Americans are very confident that they will have enough money for retirement. The study also found, however, that 42% are somewhat confident, 20% not very confident, and 16% not all confident.

The bills also enjoy support from industry executives. For example, Eric Stevenson, president of Nationwide Retirement Solutions, supports the legislation, and in particular, provisions that reduce barriers that keep employees for enrolling in their employers’ plans. He backs provisions that would allow a penalty-free $1,000 withdrawal for certain qualifying emergencies, such as car maintenance, as well as reducing the amount of service part-time workers need before being eligible to join plans. He notes that only 40% of part-time workers have access to retirement accounts.

Stevenson also explains that the concept of a plan “lost and found” is helpful because most workers change employers many times in their lives, and many lose track of old retirement accounts from previous employers. The EARN Act assigns this responsibility to the Treasury Department, whereas the SSRA assigns it to the Department of Labor.

According to Stevenson, the Nationwide Retirement Institute surveyed financial advisers and found that 93% support the legislation and believed it would benefit their clients.

Workers’ Financial and Retirement Concerns Have Shifted

New data shows significant shifts in workers’ needs from last year.   

Significant shifts occurred over the last year in the needs of workers, their financial concerns and attitudes towards retirement, Mercer data shows.  

The COVID pandemic, inflation, and market volatility have brought large-scale changes for employees and plan sponsors, finds the Mercer study, the New Shape of Work-Inside Employees’ Minds

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

This year’s Mercer study shows declines in employee satisfaction in several areas from 2021, speakers explained during a webinar that presented the results.

“After two years of continual existential crises—the [COVID] pandemic, a war in Europe, inflation, and political and social upheaval—employees are more focused on securing their financial, physical, and emotional health and well-being than by achievement and climbing the ladder,” the report states.

Among respondents, 64% agree that benefits offered at their current company are as good or better than those of competitors, compared to 73% in 2021; and 61% of workers in 2022 feel adequately compensated, compared to 68% in 2021.  

“A key takeaway from the analysis is that retirement is a primary concern for many employees,” said Katie Hockenmaier, U.S. defined contribution research leader at Mercer, in an email. “Inflation and market volatility are fueling some of these concerns and employees are looking to employers for not only additional matching contributions into the [defined contribution] retirement plan, but also more flexible match designs. We [also] found that employees found it attractive if an employer would offer matching contributions in a [defined contribution] retirement plan on student loan debt repayments, a provision that is currently being proposed within ‘SECURE 2.0.’”

Workers may be less satisfied but the study also shows 64% of workers currently consider leaving their employer down from 73% last year.

Workers are making changes to address their concerns, as 67% of individuals earning $60,000 or less have reduced their spending as have 59% of employees earning more than that, the study shows; 29% of the lower-earning cohort have reduced their savings, compared to 31% of the higher-earning group; and 29% those earning $60,000 or less report having taken on additional work, compared to 19% of higher earners.  

The top concerns for workers have also shifted since last year, the study shows.

The concern that drew the largest share of responses—up from No. 9 in 2021—was covering monthly expenses at 11.1%, followed by being able to retire, 9.1% and workload and life balance, at 8.6%, the Mercer study finds. The 2021 report showed physical health and fitness was the top concern for workers, 10.3%, workload and life balance was next at 8.6% and mental/emotional health third at 8.2%. In 2021, being able to retire was No. 5 in the list of top concerns, at 7.4%, the study showed. 

“With better health and safety measures at work and a lesser threat posed by [COVID], employees are less concerned about physical health this year than last, though it still claims the top spot for men,” Mercer’s report states.

Mercer advises plan sponsors, because needs change rapidly, to identify employees top concerns right now and to not rely on historical data to prioritize solutions that can assist workers.

Additionally, Mercer counsels employers to engage in active listening with workers to understand their top needs.

“Well-being concerns top the list this year. Employees’ basic needs for security are not being met,” the Mercer report states. “Employers should prioritize employee support – including culture, work practices and benefits.”

The Mercer study also reveals the preferred defined contribution features most attractive to workers:  They are increasing employer contributions, 43%; employer match contributions for paying down student loan debt, 42%—No. 1 for workers under 45%; and employer match contributions for contributions to health savings accounts, 38%— second most preferred for workers below age 35.

“Younger employees in particular may not have the disposable income to contribute to retirement savings, and by matching retirement contributions for expenses that are often a significant portion of income, like student loans and healthcare costs, you can help them build their nest egg early—reducing stress and increasing retirement confidence for the future,” added Hockenmaier. 

The next most-preferred features were penalty-free distributions for emergency expenses; 32%, penalty-free distributions for terminal illness; 24%; and penalty-free distributions to purchase long-term care insurance, 18%, the study finds.  

The Mercer study includes responses from 4,049 full-time employees in the U.S., working for organizations with more than 250 employees. The study was conducted between August 26 and September 9.

«