Major changes to the pension system are included in Congress’ year-end bill

Tucked into the $1.7 trillion government spending bill for 2023 that it unveiled on Tuesday is a set of important reforms to help Americans save more for retirement.

These include increasing the age of minimum distributions required from retirement plans to push companies to have more employees enrolled in the plans. The bill also includes ideas that might help young people save more early in life.

The measures — which begin on page 2,046 of the massive 4,155-page bill — mean that the long-delayed retirement reform legislation known as SECURE 2.0 is now likely to become law as soon as this weekend and will begin processing what will become law. The retirement savings crisis in the United States

“Americans deserve a dignified retirement after decades of hard work, and our law is an important step forward,” Senate Finance Committee Chairman Ron Wyden said in a statement Tuesday. And Wyden was one of the key players behind the bill along with Sen. Mike Crapo (R-AZ), Rep. Richard Neal (R-Massachusetts), Rep. Kevin Brady (R-Texas) and others.

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

Visitors to the US Capitol in Washington in September. (Reuters / Elisabeth Frantz)

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

The massive sweeping bill is also set to fund the government through 2023 and has a series of other high-profile measures attached to it such as an overhaul of how electoral votes are counted during presidential elections and a ban on TikTok on US government organs.

What will the bill do?

In a note Tuesday morning, Brian Gardner, chief Washington policy strategist at Stifel, explained how “the bill would expand retirement savings options by allowing mandatory withdrawals to be deferred, increase contribution catch-up for 401(k) plans, and provide new options for small businesses.” . Companies to offer retirement plans to employees.

The bill is a follow-up to the SECURE Act of 2019, which marks the first major retirement legislation since 2006 and took two years to prepare.

WASHINGTON, DC - MARCH 31: Committee Chairman (LR) Sen. Ron Wyden (D-Oregon) and ranking member Sen. Mike Crapo (R-ID) attend a Senate Finance Committee hearing on Capitol Hill on March 31, 2022 in Washington, DC.  Tye testifies on President Biden's budget request for fiscal year 2023 (Photo by Drew Angerer/Getty Images)

Senate Finance Committee Chairman Sen. Ron Wyden (D-Oregon) and ranking member Sen. Mike Crapo (R-Eden) during a hearing in March. (Drew Angerer / Getty Images)

The overall goal of the potential new law is a variety of ways to push companies to get more people enrolled in retirement plans.

One front is new incentives around automatic enrollment in retirement plans. The new rules will prompt employers to automatically place new employees into a company retirement plan as part of the onboarding process. Studies have shown that employers with self-enrollment retirement plans have much higher participation rates.

Other areas of focus focus on making it easier for smaller companies — which face hurdles to filing plans because of their size — to offer retirement plans. It will also allow more part-time employees at companies of all sizes to sign up.

Another major part of the bill would change the age at which people must start taking mandatory distributions from their retirement plans. The SECURE Act raised the minimum age for distribution to 72 from 70. Now, under a spending bill introduced on Tuesday, the age requirement will rise again to 73 starting January 1, 2023 and then to 75 by 2033.

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

(LR) Mildred Kerrigan, 97, and her son Kevin Kerrigan, 65, visiting from Westchester, New York, drive in a golf cart amid canceled coronavirus-related events at Brownwood Paddock Square in The Villages, Florida, United States, ahead of the incoming Democrat.  Primary, March 15, 2020. REUTERS/Yana Paskova

(LR) Mildred Kerrigan, 97, and her son Kevin Kerrigan, 65, visiting from Westchester, New York, drive in a golf cart amid canceled coronavirus-related events at Brownwood Paddock Square in The Villages, Florida, United States, ahead of the incoming Democrat. Primary, March 15, 2020. REUTERS/Yana Paskova

The plan also contains a new idea to treat student loans as deferrals for the purpose of retirement savings. This means that student loans and retirement savings can be effectively linked if the employer chooses and offers a plan that allows the worker to set aside some money for retirement while simultaneously addressing their most pressing financial concerns.

Similar provisions could link retirement and emergency savings in future years.

“There are some people who are left on the sidelines in the retirement savings game,” Kathleen Columb, vice president of the American Council of Life Insurance Companies, recently told Yahoo Finance Live. She represented one of several groups hoping to get the bill across the finish line and added, “It’s really out to help a lot of these vulnerable populations.”

Other changes include updates to the SAVERS credit, which allows some low-income workers to get additional tax breaks when saving for retirement, as well as the creation of a “clearing house” for employees to find lost retirement accounts.

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

next steps

Experts are still studying the provisions — which run for hundreds of pages — but the bill looks set to change the landscape of retirement in the coming years, with some provisions going into effect on January 1, 2023.

The Senate is in first place and could vote on the overall overall measure as soon as Wednesday. The move would be the big test of the overall package with at least 10 Republican senators needed to join Democrats to pass the effort.

On Tuesday morning, Senate Minority Leader Mitch McConnell’s office sent out a press release offering words of support for the package deal — and making its passage more likely — by saying that the package deal “consists with … the guiding principles of conservative policy.”

If passed in the Senate, the massive spending measure would head to the House of Representatives followed by President Biden’s office. The measure has urgency as lawmakers rush to finish it before Friday — to avoid a government shutdown and also to go home for Christmas.

Ben Werschkull is Yahoo Finance’s Washington correspondent.

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