The U.S. House of Representatives recently passed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act), which builds on the best elements of today’s workplace retirement savings plans while extending their benefit to millions more workers and their families.
This bill, however, is currently stalled in the U.S. Senate. This proposed law would affect more people in the U.S. than most pieces of legislation in a generation.
The SECURE Act would help by creating greater retirement security for millions of workers. Retirement savings plans such as 401(k)s, 403(b)s and individual retirement accounts have helped Americans prepare for retirement for years, often with the support of their employers.
The Pension Protection Act of 2006 was a big step forward for savers — it brought along innovations such as automatic enrollment in plans, automatically escalating savings levels over time and automatically investing in retirement-focused vehicles such as target-date funds.
Since the Pension Protection Act law, American workers have expanded their retirement savings efforts, and our defined-contribution savings system has accumulated $17 trillion — the largest pool of investment capital on earth.
This retirement system, however, needs more advancement. Millions of Americans still lack access to such plans. This is because today’s retirement plans have three shortcomings: coverage shortfalls that have left roughly half of workers without retirement plans; outdated rules governing savings limits and time frames; and a failure to accommodate strategies for converting savings into lifetime income.
Some of the things the SECURE Act would address are listed below, and they are endorsed by many employment, financial, and consumer groups. The SECURE Act would:
->Expand 401(k) coverage by allowing for open multiple employer plans covering many more companies, including some that today find themselves too small to afford running a retirement plan. It also would provide expanded start-up business credits and establish a new tax credit for companies that help workers save automatically.
->Address increased lifespans by helping Americans preserve their savings longer. It would increase the age at which workers have to begin withdrawing money from retirement plans to 72, allow them to contribute to individual retirement accounts beyond the current age limit of 70½, and allow long-term, part-time employees to participate in savings plans.
->It would allow the conversion of workplace savings into lifetime retirement income by allowing the investment into annuity products. Workers would also be able to take their annuity investments with them when they change jobs.
Currently, the SECURE Act is stuck in the Senate, with one objection being that there is no provision for using 529 college savings plan money for homeschool expenses. Soon, we will once again be in election season, when passage of any major legislation may become impossible.
The views or opinions in this article are those of the author and do not necessarily represent the views of Washington Trust Bank or senior management. Washington Trust Bank believes that the information used in this blog was obtained from reliable sources, but we do not guarantee its accuracy. Neither the information nor any opinions expressed constitutes a solicitation for business or a recommendation of the purchase or sale of securities or commodities.
As Vice President and Senior Wealth Advisor, Greg provides financial analysis to high net worth individuals. He is the author of several articles for various publications and nonprofit organizations on estate and financial planning subjects.