WASHINGTON–In Washington, the House of Representatives has passed a bill that seeks to improve the retirement savings system for U.S. workers, while separately, NAFCU has raised concerns around overdraft proposals.
The Securing a Strong Retirement Act (H.R. 2954), also called the Secure Act 2.0, was approved with a bipartisan vote of 414-5. The legislation now heads to the Senate.
"H.R. 2954 will help all Americans successfully save for a secure retirement by expanding coverage and increasing retirement savings, simplifying the current retirement system, and protecting Americans and their retirement accounts," said House Ways and Means Committee Chairman Richard Neal (D-MA). "Too many workers reach retirement age without having the savings they need."
The bill is a follow up to the first Secure Act, which was passed in 2019. In 2021, the House Ways and Means Committee approved the bill in a unanimous, bipartisan voice vote.
"It has some provisions that are pretty favorable in terms of allowing individuals to save more for retirement," Lisa Featherngill, national director of wealth planning at Comerica Bank, told CNBC. "And it has some provisions that are helpful for younger savers."
The Benefits in the Bill
According to its supporters, the second Secure Act has a number of provisions that would benefit retirement savers and employers, including:
- A provision that would require employers to automatically enroll eligible workers in 401(k) plans at a rate of 3% of salary, which would increase annually until the employee is contributing 10% of their pay. Employees could opt out or select a different contribution amount. Businesses with 10 or fewer employees or are less than three years old would be excluded from the mandate.
- Changes to how much savers can contribute if they're near retirement, and when retirees need to pull money from their accounts. Individuals age 62, 63 and 64 could make catch-up contributions of $10,000, up from $6,500.
- An increase in the starting age for required minimum distributions to 73 in 2022, 74 in 2029 and 75 by 2032, up from the current 72.
- A provision giving student loan borrowers a retirement boost via the legislation, which would basically allow employers to match student loan payments as contributions to retirement.
Other Provisions
"Let's say you have somebody with significant student loans and really can't contribute much to their 401(k)," said Featherngill told CNBC. "This would allow them the opportunity to still get an employer match on the amount paid on their student loans."
Featherngill also told the news outlet another potential change that could help young workers is that they would be able to elect that all or some of an employer match be applied to a Roth 401(k), which would provide a tax benefit when they get to retirement.
The legislation also includes changes affecting survivors of domestic abuse, small business owners and low-wage workers, and further would create a national database for Americans to reclaim lost retirement accounts.
NAFCU Raises Issues Around Overdrafts
Separately, NAFCU has sent a letter to the House Financial Services Committee sharing concerns that any efforts that eliminate overdraft protection programs could have a negative impact on credit union member.
In advance of an HFFSC hearing titled The End of Overdraft Fees? Examining the Movement to Eliminate Fees Costing Consumers Billions, NAFCU Vice President of Legislative Affairs Brad Thaler stated in the letter that such actions could “have a significant negative impact on borrowers who value these programs and are working to improve their financial well-being. It is inappropriate to intervene in market forces that are already leading many credit unions and other financial institutions to reduce, limit, or eliminate overdraft and non-sufficient funds (NSF) fees.”
Thaler further noted, “Credit union members who choose to use a courtesy pay or overdraft protection program do so willingly and with full disclosure of the program’s costs and features. Rules for overdraft programs, originally issued by the Federal Reserve and now under the purview of the Consumer Financial Protection Bureau, made them something that consumers must opt in to. This opt-in requirement gives consumers control and the overdraft rule’s notice requirements have helped consumers to better understand the cost of overdraft programs.”
As Congress examines this issue, Thaler urged lawmakers to keep in mind:
- Surveys done by credit unions of their members have shown that they highly value the protection and peace of mind courtesy pay programs provide and the assurance that their transaction will go through at the point of sale
- NAFCU surveys have found that a vast majority of credit unions report offering specialized intervention and financial education for those who frequently use courtesy pay programs, to ensure that consumers are not overly reliant on these programs and are able to improve their financial health.
- Many credit unions already do not assess fees when an account is overdrawn by a de minimis amount and some place caps on the total number of NSF fees that can accumulate in a given period.
- A majority of credit unions also report that they routinely waive fees when a member incurred the overdraft on accident and requests a fee waiver