Americans may soon have greater access to retirement plans and may be able to postpone withdrawing their savings as a result of new legislation moving through Congress. While not yet finalized, the House Ways and Means Committee has given bipartisan approval to the Securing a Strong Retirement Act in 2021.
“We are now one step closer to improving Americans’ financial security, and hope to see this measure move through Congress and be signed into law in short order,” committee Chairman Richard Neal (D-Mass.) and ranking member Kevin Brady (R-Texas) said after the committee passed the bill last week.
If passed, the bill would build on the changes to retirement law that took effect last year as part of the Secure Act of 2019. The new bill would enact the following significant changes.
These changes, along with many others in the bill, would assist millions of workers in preparing for retirement, ranging from recent college graduates who don’t know where to begin to those who are close to the finish line. It would also allow retirees to keep more of their retirement savings for a longer period of time.
To become law, the Securing a Strong Retirement Act must still pass both chambers of Congress and be signed by the president. A full vote in the House of Representatives is the next major step.
New employees who become eligible to contribute to these workplace retirement plans, with a few exceptions, would be automatically enrolled in them. Their initial automatic contribution would be 3 percent to 10% of their pay, increasing by 1 percentage point each year until it reached at least 10%, unless a worker changes the percentage or opts out entirely.
The Secure Act of 2019 extended the age at which people must begin taking required minimum distributions (RMDs) from their retirement accounts to the year they turn 72. The new Securing a Strong Retirement Act would raise the retirement age to 73 on January 1, 2022, then to 74 in 2029, and finally to 75 in 2032.
People over the age of 50 can currently make an extra $1,000 in individual retirement account (IRA) contributions each year, known as “catch-up contributions.” That $1,000 amount is not indexed for inflation, so it does not rise in line with inflation. The new bill would index that amount starting in 2023, allowing it to keep pace with inflation.
Employees ages 62 to 64 who have workplace retirement plans would have more opportunities to save under this change, which would increase their catch-up contribution limit to $10,000 for most types of workplace retirement plans and $5,000 for SIMPLE plans. These amounts would also be indexed to account for inflation.
Employers would be able to “match” a worker’s student loan payments by making equivalent contributions to the worker’s retirement plan under the Securing a Strong Retirement Act. For example, if you make a $100 student loan payment, your employer may contribute $100 to your 401(k). “This section is intended to assist employees who may not be able to save for retirement because they are overwhelmed with student debt, and thus are missing out on available matching contributions for retirement plans.”
The Securing a Strong Retirement Act would reduce the penalty to 25%, with the option of further softening the penalty to 10% by quickly correcting the error and withdrawing the full required amount.