Currently there is bipartisan support in Congress for legislation that would expand and extend savings opportunities for the retirees of today and tomorrow. It’s called the SECURE Act 2.0 — and its passage would strengthen the retirement-savings system and help more Americans achieve a secure and dignified retirement.
Since the pandemic, many Americans have reduced, stopped contributing to or withdrawn money from their retirement savings, and in 2021, as many as 14 million Americans stopped making monthly retirement contributions. These choices can negatively impact an investor’s long-term financial security.
The SECURE Act 2.0 could help investors by increasing catch-up contribution limits. Today, those 50 and older can make catch-up contributions of up to $6,500 to eligible retirement plans to take advantage of higher earning years and build up savings as they approach retirement. If passed, the new legislation would increase the catch-up contribution limit to $10,000 for older workers contributing to 401(k), 403(b), and governmental 457(b) plans and up to $5,000 to SIMPLE IRA or SIMPLE 401(k) plans. Giving investors the opportunity to increase catch-up contributions could make an immediate and positive impact.
The pandemic not only changed how much Americans were saving, it also changed their retirement timing. Edward Jones research shows approximately one-third of investors say they would retire later than originally planned in 2021, with many pushing the big day back by as many as six years. As Americans work and live longer, they need more options for when they begin drawing down retirement savings. This reform gives retirees flexibility and choice by raising the required minimum distribution age from 72 to 75. This change will help many Americans address concerns that they will outlive their retirement savings.
Congress must consider the impacts of these adjustments on individual savings efforts, but also look at the opportunity they could provide to small businesses. From supply chain issues, to labor shortages and the necessary adaptation through years of economic uncertainty, retirement planning is one of many challenges for America’s small business owners.
Only 53% of Americans working for companies with fewer than 50 employees have access to company retirement plans. Small business is big business in this country — two-thirds of new jobs are created by small businesses and they account for 44% of US economic activity. It’s not that small- and medium-sized businesses don’t want to provide for their employees, but cost and complexity are significant barriers. The SECURE Act 2.0 would increase the start-up cost tax credit for small businesses to establish retirement plans for employees — and the House-passed version of SECURE 2.0 provides a meaningful new credit for small-employer contributions up to $1,000 per employee.
Not only will this legislation incentivize small business owners to provide retirement plans, it has the potential to empower employers of all sizes to help solve the student debt crises, creating a brighter future for the retirees of tomorrow.
In an approach that draws bipartisan support for a divisive issue, SECURE Act 2.0 would permit employers to make matching retirement plan contributions to employee student loan repayments as part of a voluntary employer benefit. This benefit would allow many workers burdened with large student loan debt to start saving for retirement. Student debt is not just a young person’s challenge: borrowers aged 50-plus had the highest average student debt last year.
Providing catch-up options for today’s investors, offering flexibility to retirees and opportunities for the retirees of the future, the SECURE Act 2.0 will go a long way to strengthening our retirement savings system while helping millions more Americans achieve a secure and dignified retirement. When every year makes a difference in retirement savings, Congress must take action today.
Edward Jones Principal Lamell McMorris leads the Regulatory and Government Relations practice as head of policy. His team implements an enterprisewide policy capability, through which the firm can develop and drive an affirmative, intentional policy strategy, designed to proactively surface a wide range of policy and legislative issues.