More Potential Changes to the U.S. Retirement System Are on the Horizon. Here’s What’s in Store…

It was only two years ago that the Setting Every Community Up for Retirement Enhancement (SECURE) Act was put in place; however some more modifications may be on the way. 

There are two similar, bipartisan bills in early stages that are aiming to build on the SECURE Act, and it looks as though action will be taken on them soon.

The House bill, called the Securing a Strong Retirement Act, recently received unanimous approval, while the Senate bill, called the Retirement Security and Savings Act, is expected to receive committee’s attention in the next few months.  Some of the main provisions include student loan debt and retirement savings, catch-up contributions, required minimum distributions, annuity changes and auto-enrollment.

As they relate to student loan debt and retirement savings, both bills would enable employers to make contributions on behalf of their employees who are making student loan payments instead of contributing to their 401(k) plan.

The current legislation caps contributions at $19,500 for 401(k) plans and allows an additional $6,000 for catch-up contributions in 2021 for those who are age 50 or older.  The House bill would adjust the annual catch-up amounts based on inflation and expand the 401(k) catch-up to $10,000 for individuals who are ages 62-64.

As it relates to required minimum distributions, the SECURE Act already changed these to begin at age 72, up from 70.5.  The new House bill wouldn’t mandate these to begin until age 73 in 2022, and then age 74 in 2029 and age 75 in 2032.  The Senate is on the same page, as its bill would raise the age to 75 by 2032 and also reduce the penalty for failing to take the required minimum distribution from 50% down to 25%.

For auto-enrollment, the House bill would require employers to automatically enroll their employees in their 401(k) plan at a rate of at least 3% and then increase it each year until 10% is reached.  While the Senate bill does not require an auto-enrollment feature, it does include incentives to encourage companies to implement an auto-enrollment process.

We are always here to help with your retirement planning needs.  For more information on this issue or our employee benefit-related services contact a member of the ERISA group at Schneider Downs.

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