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Big changes to the retirement system are included in Congress’s end-of-year bill


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Tucked into the $1.7 trillion government spending bill for 2023 lawmakers unveiled Tuesday are a range of significant reforms to help Americans save more for retirement.

These include increasing the age for required minimum distributions from retirement plans to pushing businesses to get more employees enrolled in plans. The bill also includes ideas that may help younger people save more earlier in life.

The measures — which begin on page 2,046 of the massive 4,155-page bill — mean that long-delayed retirement reform legislation known as SECURE 2.0 is now likely on a path to becoming law as soon as this weekend and would start to address what is becoming a retirement savings crisis in the U.S.

“Americans deserve dignified retirements after decades of hard work, and our bill is an important step forward,” Senate Finance Committee Chair Ron Wyden (D-OR) said Tuesday in a statement. Wyden was one of many key players behind the bill alongside Sen. Mike Crapo (R-ID), Rep. Richard Neal (D-MA), Rep. Kevin Brady (R-TX), and others.

“These are reforms that will make a meaningful difference for workers who have struggled to save,” Wyden added.

Visitors to the U.S. Capitol in Washington in September. (REUTERS/Elizabeth Frantz)

Paul Richman of the Insured Retirement Institute adds that “Congress is poised to help millions more workers and retirees with significant improvements to the nation’s private retirement system [and] will add billions to the retirement savings for small business workers, part-time workers, employees with student loan debt, military spouses, low-income workers, and others.”

The massive overall bill is also set to also fund the government into 2023 and has a series of other notable measures attached to it such an overhaul of how electoral votes are counted during presidential elections and a TikTok ban on U.S. government devices.

What the bill would do

In a note Tuesday morning, Stifel Chief Washington Policy Strategist Brian Gardner explained how “the bill would expand retirement saving options by allowing a deferral on mandatory withdrawals, an increased catch-up contribution to 401(k) plans, and provide new options for small businesses to offer retirement plans to employees.”

The bill is a follow up to 2019’s SECURE Act, which represented the first major retirement legislation since 2006 and has been two years in the making.

Senate Finance committee chairman Sen. Ron Wyden (D-OR) and ranking member Sen. Mike Crapo (R-ID) during a hearing in March. (Drew Angerer/Getty Images)

An overall goal of the likely new law are a variety of ways to nudge businesses to get more people enrolled into retirement plans.

One front is new incentives around automatic enrollment in retirement plans. The new rules would prod employers to automatically put their new hires in the company’s retirement plan as a part of the onboarding process. Studies have shown that employers with auto-enrollment retirement plans have much higher rates of participation.

Other areas of focus are on making it easier for small businesses — who face hurdles to offering plans because of their size — to offer retirement plans. It would also allow more part-time employees at companies of all sizes to enroll.

Another key part of the bill would change the age when people must start taking mandatory distributions from their private retirement plans. The SECURE Act increased the required minimum distribution age to 72 from 70. Now, under the spending bill introduced Tuesday, the age requirement would raise again to 73 starting on Jan. 1, 2023 and then to 75 by 2033.

The bill also increases the so called “catch-up” contributions allowed for savers at ages 62 to 64.

(L-R) Mildred Kerrigan, 97, and her son, Kevin Kerrigan, 65, visiting from Westchester, NY, drive a golf cart amidst coronavirus-related event cancellations at Brownwood Paddock Square in The Villages, Florida, U.S., ahead of the upcoming Democratic primary, March 15, 2020. REUTERS/Yana Paskova

The plan also has a novel idea of treating student loans as deferrals for the purpose of retirement savings. That means that student loans and saving for retirement could effectively be linked if an employer chooses and offers a plan that allows a worker to put aside some money for retirement while simultaneously addressing more pressing financial concerns.

There are similar provisions that could link retirement and emergency savings in the years ahead.

“There’s some folks that have been left on the sidelines of the retirement savings game,” American Council of Life Insurers Vice President Kathleen Coulombe recently told Yahoo Finance Live. She represented one of many groups hoping to get the bill over the finish line and added “it really seeks to help a lot of these vulnerable populations.”

Other changes include updates to the SAVERS credit, which lets certain lower-income workers get additional tax breaks when they save for retirement, as well as the creation of a “clearinghouse” for employees to find lost retirement accounts.

What the bill won’t address is the challenge of Social Security, which could run low on funds as early as 2034. The bill does have its critics, with some noting that many of the reforms would be better and more effective if paired with changes to the social safety net program. But lawmakers have long been wary of any changes to Social Security itself, often referred to as “the third rail of American politics.”

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Next steps

Experts are still poring over the provisions — which run for hundreds of pages — but the bill appears set to change the retirement landscape in the years ahead with some provisions taking effect as early as Jan. 1, 2023.

The Senate is up first and could vote on the overall omnibus measure as soon as Wednesday. This step will be the big test for the overall package with at least 10 Senate Republicans needed to join with Democrats to pass the effort.

On Tuesday morning, the office of Senate Minority Leader Mitch McConnell sent a press release offering supportive words for the overall deal — and making passage more likely — by saying the overall agreement “conforms to…conservative policy guidelines.”

If it passes the Senate, the massive spending measure would head to the House of Representatives followed by President Biden’s desk. The measure has urgency with lawmakers rushing to get it finished up before Friday — both to avert a government shutdown and also to get home for Christmas.

Ben Werschkul is a Washington correspondent for Yahoo Finance.

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