SECURE 2.0: A year in review (and a look at what the retirement system still needs)

It’s going to take SECURE 3.0.

That was the clear message delivered earlier this month at a Brookings Institution seminar looking at the impact of SECURE 2.0 after one year. Speakers agreed that SECURE 2.0 represents the most extensive update in retirement law in the past 15 years.

But it was not enough, they agreed.

“It left a lot undone,” said William Gale, who holds the Miller Chair in the Economic Studies Program at Brookings.

J. Mark Iwry, a senior fellow at Brookings and a visiting scholar at Wharton School at the University of Pennsylvania agreed. “The most ambitious proposals couldn’t get bipartisan support,” he said.

Gale and Iwry are two of the authors of a Brookings paper, SECURE 2.0 and the Past and Future of the U.S. Retirement System, examining the impact of SECURE 2.0.

The development of Emergency Savings Programs was a bright spot in SECURE 2.0, said David John, senior policy advisor at the AARP Public Policy Institute. Those plans are designed to encourage people to put money away, but still have the funds needed in case of emergencies, he added.

What retirement issues Congress needs to address

The researchers identified four distinct areas that Congress should address if policymakers want to develop a more effective retirement income system. Some are likely to be more difficult to achieve than others.

#1: Aging of America. “The gradual aging of the American population will have significant effects on both retirement security and macroeconomic growth more broadly,” the authors of the paper wrote. “Addressing this trend will almost certainly require a combination of policies ranging from possible automatic enrollment in or other means of promoting 401(k) annuities or similar retirement income products to increasing labor force participation among Americans over 65.”

#2: Fiscal crisis. Bumping up against the aging population is the nation’s fiscal crisis, which calls into question whether the federal government can actually afford what it has promised, John said. “Given the outsized role of major entitlement programs for retirement in the federal budget—Social Security and Medicare alone comprise roughly one-third of total spending— programmatic changes to Social Security and Medicare may well be unavoidable,” the report’s authors wrote.

#3: Financial stress. The shift toward defined contribution plans has closely linked issues in preparing for retirement and personal finance, but retirement income is only one part of a person’s financial life, John said. In their paper, Gale and Iwry expanded on that notion: “Trends in financial metrics like household debt, wealth accumulation, credit delinquency rates, foreclosures, and access to retirement savings accounts have important implications for retirement as well as overall financial wellbeing,” the authors wrote.

#4: Retirement inequality. Finally, there is the racial and ethnic income gap, the authors said. The retirement system “gives more to those who have more and less to those who have less,” said Regina Jefferson, a panelist and law professor at Catholic University’s Columbus School of Law.

Another panelist agreed. “Low-income families are not on track for a healthy retirement,” said Fiona Greig, global head of Investor Research and Policy at Vanguard. The employer matching system is regressive, she said, adding policymakers must evaluate which programs exacerbate inequality, and which  actually encourage savings.

The report’s authors offer some suggestions for improving the system.

Adopting auto IRAs on a nationwide basis through state or federal law, expanding automatic enrollment and escalation in employer plans and implementing the saver’s match for lower- and moderate-income workers could help close the racial, ethnic and gender disparities in the non-Social Security retirement system, the authors wrote, in their report.

Related: SECURE 2.0 opens up 2 new savings options for low-income workers in 2024

Saying that far too many Americans lack the ability to increase their financial security by saving through the payroll system, they said that employers that choose not to offer their employees some form of pension or retirement should support efforts to help workers save a portion of their wages.

The authors also said that far too many people receive their retirement savings as a lump sum, adding that more widespread use of annuities could help address the issue.

In addition, they said, policymakers should find ways to help workers move their accounts when they change employers. They said that all rollovers should be made easier by standardizing the process.

Despite the ongoing problems with the system, the authors said they believe some changes are possible. “Federal retirement and savings legislation and regulatory initiatives over the past quarter century, combined with recent progress at the state level, suggest that, even in an era when partisanship and other obstacles impede cooperation on so many issues, further progress is still achievable,” they wrote.