Massive Changes To Retirement System Buried In Behemoth Omnibus Bill

Significant changes to the retirement system are included in the $1.7 trillion omnibus bill moving through Congress.

The 4,155-page piece of legislation could codify $858 billion in defense spending and nearly $773 billion for discretionary programs. Among other provisions, the bill funds border security for foreign nations, offers contributions for LGBTQ pride centers, and christens various federal properties with the names of powerful lawmakers. Secure Act 2.0, an overhaul to the current retirement savings regime, is also buried in the bill, which members of Congress must pass by Friday to fund the government through the current fiscal year.

Among the most significant changes is the automatic enrollment of employees in 401(k) or 403(b) programs for companies that offer matching benefits, according to a summary from the Senate Finance Committee. Workers would be required to enroll at a rate of 3% before contributions automatically increase by 1% each year until a 10% threshold is reached.

Employees could choose to opt-out of the program at any time, while exemptions exist for small businesses with 10 or fewer employees, church programs, and government plans. The Senate Finance Committee said that automatic enrollment would boost “participation by eligible employees generally, and particularly for Black, Latinx, and lower-wage employees.”

One portion of the bill would allow companies to make matching 401(k) contributions on behalf of employees attempting to pay off student loans rather than making deposits into their retirement savings accounts. The measure 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 new provision occurs as a policy from the Biden administration to forgive as much as $20,000 in student loan debt per borrower awaits a ruling from the Supreme Court. The program is now on hold after a ruling from the Court of Appeals for the Eighth Circuit, which granted standing to a lawsuit from multiple Republican state attorneys general who contended that the White House illegally bypassed Congress while drafting the policy.

Another portion of the Secure Act 2.0 would allow employers to offer “small immediate financial incentives” for contributing to a retirement plan. Though current law bars employers from offering gift cards and similar incentives to boost participation, the new legislation would remove such restrictions.

The bill would also allow savers to pull $1,000 from their 401(k) or IRA account to meet an emergency expense without incurring the 10% penalty for early withdrawals. Only one such withdrawal could occur each year, while savers could only be eligible for other emergency funds in the subsequent three years if they return the original $1,000 withdrawal.

Insured Retirement Institute Chief Government and Political Affairs Officer Paul Richman asserted in a statement that the Secure Act 2.0, which follows the Secure Act passed three years ago, would “help millions more workers and retirees with significant improvements to the nation’s private retirement system” and add “billions to the retirement savings for small business workers, part-time workers, employees with student loan debt, military spouses, low-income workers, and others.”

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