By Rob Wile -
NBC News
A law pending in Congress within the budget plan that must be approved before the end of the year could introduce major changes in the pension and retirement system, including, for example, a measure that requires the automatic enrollment of employees in the plans of their companies if they meet the requirements.
The regulation, called Secure Act 2.0, provides that companies enroll workers in a 401(k) plan, deducting between 3% and 10% of their income before taxes to deposit them in a retirement account;
employees could always opt out of the program.
The law allows companies to take into account employees who repay student loans when calculating contributions.
And it provides tax breaks for small businesses to start offering 401(k) plans, increasing tax breaks.
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“This measure will bring billions in additional retirement savings and help alleviate the insecurity and anxiety that workers and retirees feel about having enough savings to provide the income they need to sustain themselves during their retirement years.” said Paul Richman, an executive with the Insured Retirement Institute.
Although many companies already offer 401(k) plans, enrollment is usually not automatic.
Just 51% of those who responded to a 2020 Society for Human Resource Management survey said they automatically enrolled workers.
Another survey by the American Association of Retired Persons (AARP) revealed this year that almost half of the nation's workers do not have access to a retirement plan at work.
This equates to some 57 million private sector employees between the ages of 18 and 64.
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The problem is especially acute for part-time workers.
The new law reduces the service requirement for these workers from three consecutive years to two, meaning they would be automatically enrolled in their company's 401(k) retirement program once they exceed 500 hours of total service.
Workers who have experienced unstable employment or changed jobs would also have access to a database managed by the Department of Labor to find out if their employer could have automatically enrolled them in a plan.
The law would also improve the lot of the 84% of adults who say student loan payments have limited their ability to save for retirement, according to a 2019 study by the AgeLab of the Massachusetts Institute of Technology and the TIAA organization.
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Under the new legislation, employers could view a worker's student loan payment as the equivalent of a 401(k) contribution and match it.
For workers ages 60 to 64 who were previously unable to contribute to a 401(k) plan, the so-called catch-up contribution they can make to their current 401(k) plan would increase up to $10,000.
Lastly, the law offers a 100% tax credit to businesses with 50 or fewer employees for the cost of maintaining a 401(k) plan.
“It's a bill that helps all income levels and all types of workers and retirees,” Richman said.
