Could this be the year for SECURE 2.0?
Helpful retirement legislation may be around the corner for businesses and their employees.
There’s certainly been some forward momentum with the House passing the Securing a Strong Retirement Act (SSRA or “SECURE 2.0”) by a resounding vote of 414 to 5 on March 29, 2022. With the Senate likely proposing their own bills in the coming months, 2022 could indeed be the year we finally see substantive retirement reform passed into law.
Building retirement security for more Americans
The original SECURE Act laid important groundwork, helping 4 million more Americans save for retirement through their employers according to an official statement from Chairman Richard E. Neal (D-MA) in late March. It’s estimated that as many as 700,000 new retirement accounts could be formed as a result of SECURE 2.0.
With March 2022 marking the eleventh straight month with over 400,000 jobs added back into the American economy, we’re moving in the right direction. While inflation may continue to be a concern for employers and employees, I’m encouraged by the steps Congress has taken thus far to help more workers get access to retirement savings plans, start saving earlier in their careers, and save at progressively higher levels over time.
What we’re keeping an eye on: A boost for retirement savings with auto-plan features
A key SECURE 2.0 provision outlines that auto-enrollment (at least 3%) and auto-escalation (1% annually up to at least 10%) be required in most newly established 401(k) and 403(b) plans. Of course, employees would have the ability to opt out and plans already in existence would be exempted from the requirement.
This is a good place to start but should be considered a baseline or building block from which to iterate and grow savings for a stronger, long-term retirement. According to Principal® December 2021 block-of-business data, a 6% starting automatic enrollment rate offers a better baseline for many workers. At this starting level, we see positive impacts for most workers’ savings rates, with average deferrals at 7.9% and an 11% average total contribution with employer contributions.
Auto-plan features in action
Once workers are in a retirement plan with auto features, we see positive movement and beneficial effects. According to 2021 Principal data:
- 94% of eligible employees stay in plans with automatic-enrollment once they’re enrolled. (Principal data, 2021)
- 85% of employees are comfortable with automatic-enrollment with a 3% deferral rate. (Principal Retirement Security Survey, Q2 2021)
- And, 73% of employees are comfortable with automatic-enrollment at a slightly higher 6% automatic-enrollment deferral rate. (Principal Retirement Security Survey, Q2 2021)
Workers recognize and appreciate the benefits of their employer providing helpful nudges in retirement savings. A Principal Retirement Security Survey (June 2021) shows that 84% of workers who were auto-enrolled reported it helped them start saving sooner than if they’d made that decision themselves.
The potential benefits extend to employers too: Our same survey found nearly 6 in 10 (58%) employers indicate automated features have positively impacted their overall plan success. Protections for businesses
This new legislation could bring additional peace of mind for businesses that use, or are contemplating using, an auto feature plan design: SECURE 2.0 establishes a new safe harbor allowing employers to self-correct inadvertent errors related to automatic-enrollment and escalation within 9½ months following the end of the plan year-end in which the error occurred.
What we might see next from the Senate
Later this spring, we may get a clear picture of what could surface from the Senate’s response to SSRA. There’s potential for either a single bill to surface or two separate bills. If the latter develops, we could still see coordination between the Senate Health, Education, Labor, and Pensions (HELP) Committee (traditionally focused on ERISA issues) and the Finance Committee (for tax issues). This is where some differences may surface—but overall, I still think we’ll see a number of common provisions between both bills.
Looking ahead
We’re admittedly optimistic as we’re seeing all four relevant committees responsible for retirement savings policy working actively on their bills and in a bipartisan manner. So, there’s a solid chance the Senate will bring their respective bills to the floor by summer, setting the stage for a common bill to reach the President’s desk likely after the midterm elections in November.
Another factor being considered: A number of prominent bill sponsors are discussing retirement. This adds additional momentum to retirement legislation. Congressional colleagues will want to recognize senior members’ leadership in retirement policy by helping push through this legislation with their names attached.
For now, we’ll continue to watch and hope this good work continues and 2022 closes with big retirement security wins for businesses and their workforces.
Learn more about the House-passed Securing a Strong Retirement Act by reading the section-by-section summary.
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment, or tax advice. You should consult with appropriate counsel, financial professionals, and other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements. PQ13186 | 2128566-042022