Helping workers save: Employers can take small steps as lawmakers consider big ones
Retirement legislation may have stalled, but even small actions by employers can help workers, says Denny Artache, CEO of Artache Financial Group.
The Securing a Strong Retirement Act, or Secure Act 2.0, stalled last year, but stands to get a new life in 2022. The bipartisan bill to make it easier for Americans to save in retirement plans has very strong support on both sides of the aisle, and industry watchers are optimistic that its major provisions will get passed, either as a stand-alone bill or part of broader legislation.
Katie Kuehner-Hebert: What are lawmakers considering?
Denny Artache: They want to give employers better options to increase the worker participation rate in their 401(k) and 403(b) plans. Lawmakers talk about requiring automatic enrollments and automatic escalation in plans, starting at 3 percent of a worker’s salary and rising 1 percent each year until the 10 percent cap is reached – I can see how that would get more people involved.
They talk about employers matching retirement plan contributions in the same amount that workers pay for their monthly student debt. They’re also going to allow more hardship withdrawals to include helping with incidents of domestic violence, which was not allowed before.
In addition, they want to raise the age that people have to start making required minimum distributions from their plans, and they also want to raise the amount of catch-up money that older workers can put in their plans, from $6,500 to $10,000 a year. Moreover, they want 401(k) and 403(b) plans to be able to have more ETFs, and not just mutual funds and annuities – I really like that provision.
Lawmakers are also talking about raising the tax credit for employers that are absorbing the start-up costs to implement new retirement plans, which could enable them to save more on taxes.
Outside of legislation, what can employers do to help their workers save for more retirement?
Ultimately education is the best thing. Too many people read or hear something that is just misinformation on how to invest, whether it’s too late or too early – and that can stop people from taking action.
The biggest message employers can share with their workers is to make it a habit to save. Even saving a little amount each month can grow exponentially with compounded interest. Part of creating that habit is to budget each month, including cutting out unnecessary expenses. It’s a slow grind, but it will pay off over time.
Employers should also encourage their workers to consult with either the company’s retirement plan advisors or outside financial advisors, to make wise decisions about the right time to take Social Security benefits and how to appropriately utilize their Medicare benefits. Many people don’t have the right health insurance and many go bankrupt as a result. For those who are late in the game, they should also talk with a professional to minimize taxation when making these decisions.