America’s workers and retirees are getting some nice year-end gifts from Washington.
As part of a bigger bill to keep the government running, Congress has passed, and President Biden has signed, something called Secure 2.0, which will make it easier for millions of Americans to stash more cash in their workplace retirement plans.
It will also help middle- and lower-income workers who may not be able to save much by providing them with a new benefit that amounts to a savings contribution — up to $1,000 per person.
Finally, it will make it easier for part-time workers to enroll in an employer’s retirement plan, by requiring plans to automatically enroll workers unless they opt out.
This last change is potentially significant, because there are some 26 million Americans who, for various reasons, only work part time. Why should retirement plans be available only to full-time workers? Last week’s bill builds on 2019 legislation requiring employers with 401(k) plans to permit long-term part-time employees to join, including those with one year of service (with 1,000 hours) or three consecutive years (with 500 hours of service). Starting in 2025, the new bill will shorten this waiting period by a year–meaning part-timers will be able to enroll in their employer’s plan after two years, instead of the present three.
But now let’s read the fine print. Secure 2.0 automatically enrolls part-time workers in their employer’s retirement plan unless they opt out — but that’s only if the retirement plan is new. Existing plans do not have to automatically enroll their workers. Then there is this: Many employers still don’t offer retirement plans in the first place, making all of this moot for many workers — the very ones who need to be saving more for retirement.
Every nickel that workers can salt away is important, given study after study showing how little tens of millions of Americans have saved. How little? According to investment giant Vanguard, average retirement savings by age are downright scary:
Source: Vanguard’s How America Saves report
It’s the median column on the right that concerns me. Median means half have less and have more, meaning that half of Americans aged 55-64 have less than $89,700 in their retirement accounts. How far do you think that will go — particularly at a time of high inflation? As I’ve mentioned many times before, one item alone — out-of-pocket healthcare costs for a couple retiring at age 65 — are, according to Boston investment giant Fidelity, estimated at $315,000. So yes, making it easier for everyone to save more — or anything for that matter — is more important than ever.
Despite its limitations, I’m encouraged that in this era of political polarization, that Secure 2.0 got bipartisan support, attracting “yes” votes from opposites like Mitch McConnell, the right-wing Kentucky Republican senator, and Alexandria Ocasio-Cortez, the New York left-wing representative. This, perhaps, could bode well for future efforts to address America’s retirement crisis.
In fact, one bill aimed at building on Secure 2.0 was just introduced in Congress two weeks ago. It’s also bipartisan, given that it has both Republican and Democratic sponsors in both the House and Senate. It’s called the Retirement Savings for Americans Act of 2022 (RSSA), which proposes one very big change: a single retirement 401(k)-type plan run by the federal government for workers without an employer-sponsored retirement plan.
This would be a very big deal, in that it would allow millions of workers left behind by SECURE 2.0 to automatically be enrolled in a plan, allowing them to save more — or begin saving — for retirement. Workers could switch jobs without having to worry about access to a plan; assets would go into a low-fee diversified investment fund. And they would get a match in the form of a refundable tax credit, not from their employer but the federal government.
Of course, where the money would come from will be a major sticking point, given concerns about the future viability of existing programs like Social Security and Medicare. The only way to bolster them is by either raising taxes, raising eligibility ages or trimming benefits — or a painful combination of the above. Within this context, launching yet another federally-funded retirement program will likely prove to be politically difficult.