Tucked into the $1.7 trillion 2023 government spending bill unveiled Tuesday are a number of significant reforms to help Americans save more for retirement.
These include raising the age for required minimum distributions from pension plans to pressuring companies to get more employees enrolled in plans. The bill also includes ideas to help younger people save more earlier in life.
The measures — which begin on page 2,046 of the massive 4,155-page bill — mean that long-delayed pension reform legislation known as SECURE 2.0 is now likely to become law as soon as this weekend and will begin addressing what to become. a pension savings crisis in the United States
“Americans deserve dignified retirements after decades of hard work, and our bill is an important step forward,”[ads1]; Senate Finance Committee Chairman Ron Wyden (D-OR) said Tuesday in a statement. Wyden was one of many key players behind the bill along with Sen. Mike Crapo (R-ID), Rep. Richard Neal (D-MA), Rep. Kevin Brady (R-TX) and others.
“These are reforms that will make a meaningful difference for workers who have struggled to save,” Wyden added.
Paul Richman of the Insured Retirement Institute adds that “Congress is poised to help millions more workers and retirees with significant improvements to the nation’s private retirement system [and] will add billions to the retirement savings of small business workers, part-timers, employees with student loan debt, military spouses, low-income workers and others.”
The massive overall bill is also set to fund the government into 2023 and has a number of other notable measures attached to it, such an overhaul of how electoral votes are counted during presidential elections and a TikTok ban against US government entities.
What the bill would do
In a memo Tuesday morning, Stifel Chief Washington Policy Strategist Brian Gardner explained how “the bill would expand retirement savings options by allowing a deferral of mandatory withdrawals, an increased catch-up contribution to 401(k) plans and provide new options for small businesses to offer retirement plans to employees.”
The bill is a follow-up to 2019’s SECURE Act, which represented the first major pension legislation since 2006 and has been less than two years old.
An overarching goal of the likely new law is a series of ways to push businesses to get more people enrolled in pension plans.
One front is new incentives around automatic enrollment in pension schemes. The new rules will encourage employers to automatically enroll new employees into their company pension plan as part of the onboarding process. Studies have shown that employers with automatic enrollment pension schemes have much higher participation.
Other areas of focus are making it easier for small businesses – which face barriers to offering plans because of their size – to offer pension plans. It will also allow more part-time employees at companies of all sizes to sign up.
Another important part of the bill will change the age at which people must start taking mandatory distributions from their private pension plans. The SECURE Act raised the required minimum age for distribution to 72 from 70. Now, under the spending bill introduced Tuesday, the age requirement will be raised again to 73 starting Jan. 1, 2023, and then to 75 by 2033.
The bill also increases the so-called “catch-up” contributions that are allowed for savers aged 62 to 64.
The plan also has a new idea to treat student loans as deferrals for pension savings. That means student loans and retirement savings can be effectively linked if an employer chooses and offers a plan that allows an employee to set aside money for retirement while also addressing more pressing financial concerns.
There are similar provisions that may link pension and emergency savings in the years ahead.
“There are some people who have been left on the sidelines of the retirement savings game,” American Council of Life Insurers vice president Kathleen Coulombe recently told Yahoo Finance Live. She represented one of many groups hoping to get the bill across the finish line, adding “it really seeks to help a lot of these vulnerable populations.”
Other changes include updates to the SAVERS credit, which allows certain lower-income workers to get extra tax breaks when saving for retirement, as well as the creation of a “clearinghouse” for employees to find lost retirement accounts.
What the bill won’t address is the challenge of Social Security, which could be short on funding as early as 2034. The bill has its critics, with some noting that many of the reforms would be better and more effective if combined with changes to the Social Safety Net program. But lawmakers have long been wary of changes to Social Security itself, often referred to as “the third rail of American politics.”
Experts are still reviewing the provisions – which run into hundreds of pages – but the bill looks set to change retirement for years to come, with some provisions taking effect as early as January 1, 2023.
The Senate is up first and could vote on the overall omnibus measure as soon as Wednesday. That step will be the big test for the collective package of at least 10 Senate Republicans needed to join with Democrats to pass the effort.
On Tuesday morning, the office of Senate Minority Leader Mitch McConnell issued a press release offering words of support for the overall deal — making passage more likely — saying the overall deal “is consistent with … conservative policy guidelines.”
If it passes the Senate, the massive spending measure will go to the House of Representatives followed by President Biden’s desk. The measure is urgent with lawmakers rushing to get it done before Friday — both to avert a government shutdown and also to get home for Christmas.
Ben Werschkul is a Washington correspondent for Yahoo Finance.
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