WASHINGTON–The new federal spending package includes a number of provisions that will affect how Americans and credit union members save for retirement, creates new powers around “emergency savings accounts,” and will also affect the options credit unions will be able to offer to their employees.
Proponents of the provisions say they are designed to help more than just Americans who can already afford to save or have access to workplace plans, and also aim to bring lower- and middle-income workers additional benefits, including a benefit that amounts to a matching contribution — up to $1,000 per person — from the federal government.
Another provision will make it easier for part-time workers to enroll in workplace retirement plans.
The changes were included in a bipartisan bill, known as Secure 2.0, that was included in the huge spending bill.
Nearly Half Have No Options
According to analysts, the retirement components build upon a series of changes made to the retirement system in 2019, which made it possible for employers to add annuities to their 401(k) retirement plans and raised the age that retirees are required to begin pulling money from their retirement accounts.
In its analysis of the new benefits, the New York Times cited a recent study by AARP, which found nearly half of private sector employees from 18 to 64, or 57 million people, do not have the option to save for retirement at work. That’s about 48% of the work force, AARP said.
The Changes & Provisions
Among the changes and provisions in the new plan:
- Student Loan Debt. For those struggling with student debt, workers making student loan payments would qualify for employer matching contributions, even if they weren’t making qualifying retirement plan contributions of their own.
- Automatic Enrollment. Employers can already enroll their employees in workplace retirement plans if they choose to, which “meaningfully bolsters both workers’ participation and savings rates,” noted the Times, before adding that this bill would require employers — at least those starting new plans in 2025 and thereafter — to automatically enroll eligible employees in their 401(k) and 403(b) plans, setting aside at least 3%, but no more than 10%, of their paychecks. Contributions would be increased by one percentage point each year thereafter, until they reached at least 10% (but not more than 15%), under the proposal. Existing plans won’t need to follow the new rules. Small businesses with 10 or fewer workers, new businesses operating for less than three years, and church and governmental plans are also exempt.
- Emergency Savings. Employers will be permitted to automatically enroll workers into emergency savings accounts, which are linked to employees’ retirement accounts. They can enroll workers so that they set aside up to 3% of their salary, up to $2,500 (though employers can choose a smaller amount). Tax-wise, the emergency savings accounts will work similarly to Roth accounts, according to the Times’ analysis.
- Matching contributions for student debtors. The Times pointed out some employers provide a matching contribution on the amount you save in your 401(k) or workplace retirement account — they might match every dollar contributed, but people with student loans may delay saving for retirement while they focus on whittling down their debt, “which means they stand to lose years of free money from their employer.” Starting in 2024, student loan payments would count as retirement contributions in 401(k), 403(b) and SIMPLE I.R.A.s for the purposes of qualifying for a matching contribution in a workplace retirement plan. The same goes for governmental employers who make matching contributions in 457(b) and related plans.
- Saver’s match. Workers with low to middle incomes of up to $71,000 will receive a greater benefit — in the form of a matching contribution from the government — when they save inside an IRA and workplace retirement plan like 401(k)s. Starting in 2027, instead of the nonrefundable tax credit — which is paid out in cash as part of a tax refund — taxpayers will receive what amounts to a federal matching contribution that must be deposited into their I.R.A. or retirement plan. It cannot be withdrawn without penalty.
- Catch-up contributions. People ages 60 to 63 would be permitted to set aside extra funds for retirement. Starting in 2025, the new rule would increase current limits to $10,000 or 50% more than the regular catch-up amount that year, whichever is greater, for people in that age group. (Increased amounts are indexed for inflation after 2025.)
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