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This is how the US Senate could change the 401k retirement plan

2022-04-26T17:28:35.064Z


The Senate will debate this spring a series of bills that could change the way Americans save for retirement with the 401k plan.


Authorize company accounts: changes in 401k 1:17

New York (CNN Business) --

The US Senate has retirement on its mind, and it's not because the median age of lawmakers is 64.

A group of new bills that could change the way Americans save for retirement have landed on lawmakers' desks this spring.


According to experts, the proposals have broad bipartisan support and a clear path forward.

If senators can reconcile their ideas into a concise package, President Joe Biden could sign the changes into law before Congress's August recess.

This is a look at the changes being studied.

The House Bill: SECURE 2.0

Last month, Congress passed the SECURE 2.0 bill almost unanimously, which introduces sweeping changes to 401k and 403b account rules to address America's looming retirement crisis.

(In 2030, about 21% of the nation's population will be 65 or older, and only 36% of adults believe their savings are on track.)

The bill:

  • Requires employers to automatically enroll all eligible workers in their retirement plans at a savings rate of 3% of salary.

    (Currently, many employees have to opt in and then choose their contribution level.)

    Enrolled workers' contribution rates will automatically increase each year by 1% until their contribution reaches 10% per year.

  • It allows workers between the ages of 62 and 64 to increase their catch-up contributions to 401k and 403b plans up to $10,000 a year, up from $6,500 today.

    Beginning in 2023, these catch-up contributions would be taxed as Roth contributions, meaning they would be taxed before being invested for retirement, even though earnings would be indexed for inflation.

  • Allows employers to treat student loan repayments as elective retirement account rollovers, and offer a matching contribution.

  • Increases the minimum age at which members must start withdrawing money from their employer-sponsored retirement accounts each year, from 72 to 75 years old.

  • It requires companies to allow part-time employees who work at least 500 hours a year for two years (the equivalent of just under 10 hours a week) to contribute to a retirement account.

The bill is now in the Senate and proposed the following modifications:

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The Cardin-Portman bill

United States Senators Rob Portman, Republican of Ohio, and Ben Cardin, Democrat of Maryland, who have worked together for years on retirement-related issues, recently introduced their Retirement Savings and Security Act (S.1770), which shares measures important with the SECURE 2.0 bill in the House of Representatives.

Senators want their plan to be the basis of the Senate companion bill, but there are some important differences: First, there is no provision for automatic enrollment.

The House bill would raise the minimum distribution age for 401k funds to 73 starting in 2022, 74 years starting in 2029, and 75 years starting in 2032. The Cardin-Portman plan would raise the age until age 75 in 2032 without the intermediate steps.

The House plan would increase catch-up contributions, but employees would pay taxes before contributing;

Cardin and Portman's plan does not require it.

The Murray-Burr bill

During a Senate hearing on retirement savings last month, panel chair Patty Murray said she and Republican Sen. Richard Burr are working to create another retirement package that would go to the floor "at end of this spring.

"It's painfully clear that we need to do more to strengthen people's emergency savings and retirement security," Murray said.

The bill has yet to be drafted, but analysts believe it will drop the auto-enrollment provision, though it will include incentives to encourage companies to implement the feature on their own.

This Senate bill would build on the House "Retirement and Savings Enhancement Act (RISE)" which was expanded and integrated into the SECURE 2.0 bill.

Murray said his bill would focus on offering new emergency savings options, encouraging automatic re-enrollment and helping people locate "lost" retirement accounts.

The bill could also strengthen disclosure of fees and encourage retirement plans to include annuities, a tool that allows investors to make a series of payments to an insurance company that regularly pays them back a specified amount in the future.

  • Big changes are coming to your 401k retirement plan.

    This is what you should know

The Starter-K Act

In April, Senators Tom Carper and John Barrasso introduced a law called "The Starter-K Act of 2022", which aims to expand access to retirement savings plans.

Currently, only half of small businesses with fewer than 50 employees in the US offer a retirement plan to their workers.

His plan would create "starter" retirement contribution plans with simplified rules that would reduce costs for small businesses and startups signing up for the program.

Employees of participating companies would be automatically enrolled and could save up to $6,000 a year.

  • How to reach your retirement with $1 million or more

Make the parts fit

The Senate has much to consider as it moves forward, but both parties agree on the need for change.

Nearly 70% of private-sector workers have access to a 401(k), but only 50% use it, and fewer than 40% of the lowest-paid workers have any retirement accounts.

The Senate Finance Committee will review the Cadrin-Portman bill and the Senate Finance and Health, Education, Labor and Pensions Committee will review the Murray-Burr bill.

Provisions such as the Starter-K Act could be added to the plans during these reviews.

Ultimately, the two commissions will work to combine their plans into one, which will be put to a vote in the Senate.

The plan will then go to committee, where the House and Senate will work out differences before sending the final bill to President Joe Biden for his signature.

The Senate could vote on the plan before the August recess, said Angela Montez, special counsel at the Eversheds Sutherland law firm, which focuses on retirement and investment policy.

"We're approaching the midterms and people will want to have an achievement to tout," he said.

"It's a good package for people to apply."

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Source: cnnespanol

All news articles on 2022-04-26

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