Now that the Senate has passed a sweeping spending bill to fund the federal government into next year and avert a shutdown, advisors are cheering a major overhaul of the rules around retirement savings that was included in the package.


The so-called Secure 2.0 Act, the successor to a landmark 2019 retirement bill,enjoyed broad support in the wealth management industry, with trade groups like the Investment Adviser Association and the Insured Retirement Institute lobbying for its passage. Here are the major changes:

Raising the age for required minimum distributions. The original Secure Act increased the required minimum distribution, or RMD, age to 72. The new bill stretches that increase out further, bumping up the RMD age initially to 73, and eventually raising it to 75. Advocates of the move argued that it's a necessary step to help ensure that people don't outlive their retirement savings.

Auto-enrollment in 401(k) plans. The authors of the bill note that workplace retirement savings plans are a key ingredient to boosting savings rates, but even when a plan is available, many employees don't opt in. Secure 2.0 tries to fix that by mandating that 401(k) and 403(b) plans automatically enroll employees, setting a minimum default contribution rate of at least 3%, but not more than 10%. Employees would have the choice of opting out.

Catch-up contributions. Workers who haven't saved enough for retirement throughout their careers sometimes scramble to make up the shortfall as they approach the end of their working life. The bill increases the limits for making so-called catch-up contributions for employees ages 60 through 63. Starting in 2025, the limit for catch-up contributions for savers in that age range would increase from $7,500 a year to at least $11,250.

Support for small businesses to offer retirement plans. Small employers already can take advantage of a credit to help defray the administrative costs of setting up a retirement plan. The new bill increases the credit from 50% to 100% for businesses with up to 50 employees, effectively eliminating one of the biggest barriers to offering a workplace plan. An additional credit is available that "generally will be a percentage of the amount contributed by the employer on behalf of employees, up to a per-employee cap of $1,000″ for the smallest employers, according to a summary of the bill. These credits phase down over time and are no longer available after five years.

Help for student loan debt. The burden of student loan debt can be a major impediment to saving for retirement. After all, with an average borrower saddled with more than $37,000 in federal loan debt, it can be hard to pay that down while also putting money away for retirement. The Secure 2.0 Act permits employers to make matching contributions to a retirement plan based on qualified student loan repayments. So even if a borrower can't afford to contribute money to a retirement plan, they can still start building a nest egg through their employer match.

Access for part-time workers. The Secure 2.0 Act builds on its predecessor's efforts to expand access to workplace plans for part-time employees. The earlier bill had said that part-time employees must be permitted to enroll in a retirement plan if they either work 1,000 hours in one year, or 500 hours in three successive years. The new bill reduces the so-called 500-hour test to two years.

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