Big changes in the way Americans save for retirement could go into effect with the new spending law

New legislation making its way through Congress could improve retirement insurance for American workers. The plan is part of the government’s spending bill, and includes a provision that would automatically enroll eligible employees into their company’s retirement plan.

The hallmark of the legislation, called Security Act 2.0, would see companies enroll workers in a 401(k) retirement plan, and deduct at least 3%—but no more than 10%—of an employee’s pretax earnings, which would be deposited in a 401(k) account. ). Employees can always opt out of the programme.

The legislation would also allow employers to include employees who pay student loans when considering 401(k) contributions.

And it would provide tax incentives for small businesses — the vast majority of corporations in the United States — to begin offering 401(k) plans by increasing the tax write-offs available to those companies for providing retirement plan access.

said Paul Reichmann, chief government and policy officer at the Institute for Insured Retirement, a trade group.

While many companies currently offer 401(k) plans, enrollment is usually not automatic. Only 51% of companies that responded to a 2020 Society for Human Resource Management survey said they automatically enroll new or existing employees into a 401(k) plan.

Meanwhile, an AARP survey this year found that nearly half of all workers in the United States do not have access to a retirement plan at work in the first place. This equates to approximately 57 million private sector workers between the ages of 18 and 64.

This issue is especially acute for part-time workers. Security Act 2.0 will reduce the service requirements for these workers from three consecutive years to two, which means they will automatically be enrolled in their employer’s 401(k) retirement program once they exceed 500 hours of total service.

Workers who have experienced precarious employment or have switched jobs will be able to access a central database operated by the Department of Labor to see if their employer automatically enrolled them in a 401(k) plan while they were employed.

The legislation would also improve the share of the 84% of American adults who say student loan payments have limited their ability to save for retirement, according to a 2019 study by MIT AgeLab and financial services organization TIAA. Under the new legislation, employers could consider paying a worker a student loan Equivalent to a 401(k) contribution and matched accordingly.

For older workers ages 60 to 64 who were unable to contribute to a 401(k) earlier in their careers, the so-called catch-up contribution they can make to their existing 401(k) plan will increase to $10,000. .

Finally, the legislation offers a 100% tax deduction to companies with 50 or fewer employees for the cost of maintaining a 401(k) plan.

“It’s a bill that helps all income levels and all types of workers and retirees of all kinds,” said Richman, of the Institute for Insured Retirement.

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