SECURE 2.0 Passes—Here’s What It Means To Your Retirement

In the dark of the night, snuggled within the 4,000+ page Omnibus Bill meant to keep the machine of government well-oiled, lies a passage that may change the future of retirement saving.

And the average American worker is ready for it.

Dubbed the “SECURE 2.0 Act of 2022,” it represents an extension of the original SECURE Act, signed into law by President Trump in December of 2019. Like its predecessor, SECURE 2.0 came with unanimous or near-unanimous support. Why it needed to be slipped into an unrelated bill tells you more about how the machinations of Washington work than it tells you about the validity of the act itself.

“In 2019, Congress passed the original Secure Act, which also expanded access to retirement accounts for workers,” says Corie Wagner, Senior Editor, Industry Research at SeniorLiving.org in Los Angeles. “Similarly, one of its goals was to help Americans save more money for retirement. However, millions still feel very unprepared financially for life in retirement, so those original provisions may not have gone far enough.”

As discussed in previous reports, SECURE 2.0 attempts to address this. The American Retirement Association press release notes it includes the following features:

• “A Starter 401(k)—that could provide over 19 million new American workers with access to the workplace-based retirement system through a brand new super simple, safe harbor 401(k) plan.”
• “A 100% tax credit for new plans to incentivize the creation of new workplace retirement programs by small businesses.”
• “A Saver’s Match Program that would incentivize retirement savings by providing a 50% matching contribution on up to $2,000 in retirement savings annually for lower- and middle-income Americans. Over 108 million Americans would be eligible for the Saver’s Match that would be directly deposited into their retirement account—boosting the savings of moderate-income earners.”

“We are grateful to the many members of Congress and staff who worked tirelessly to get SECURE 2.0 included in the omnibus legislation enacted this week,” noted Brian Graff, CEO of the American Retirement Association in Washington, DC. “This important legislation will enhance the retirement security of tens of millions of American workers—and for many of them, give them the opportunity for the first time to begin saving.”

While the average American may not possess an interest in the subtleties of lawmaking or the complex tax implications of retirement saving, they appear to support the bottom-line aim of SECURE 2.0.

Last spring, SeniorLiving.org conducted an online survey of 1,028 U.S. adults. The group’s website says, “While 7 in 10 American workers had never heard of SECURE 2.0 legislation, they support many of its retirement savings provisions.”

The survey results, broken down both by age group and party affiliation, seem to back this up. Slightly more than half the respondents over age 55 like the idea of the SECURE 2.0 Act’s provision of automatic 401(k) enrollment, while 64% of those younger support this. Only 12% of those registered as Democrats oppose automatic 401(k) enrollment, and more than twice as many (27%) Republicans also oppose it outright.

You might remember the Pension Protection Act of 2006 first introduced the concept of automatic 401(k) enrollment. This shifted the then-current 401(k) practice of requiring workers to opt-in before being allowed to participate in their company’s 401(k) plan to requiring them to opt-out only if they did not want to participate.

“Sixty percent of American workers support Secure 2.0 Act’s provisions like automatic 401(k) enrollment,” says Wagner. “This legislation is popular among Americans because so few feel prepared for retirement and need as much assistance as possible. Only one in three felt that they’d be financially secure throughout their retirement years.”

Interestingly, 29% of the survey respondents said they would “opt-out” of automatic 401(k) enrollment. This number is more than three times larger than the most recent opt-out data available from Vanguard.

The survey also revealed only 24% said they were “Not at all” stressed about living comfortably in retirement.

“Timing is everything, and the market has certainly been more volatile of late,” says Graff. “You add inflation into that mix, and it’s understandable that you’d have retirement savings anxiety.”

The SECURE 2.0 Act hopes to address this. It contains several provisions meant to encourage companies to create retirement savings plans for their workers.

“There are a number of things that it does to help people toward retirement,” says Graff. “It starts with expanding coverage with the new Starter 401(k) and the 100% tax credit for startup plans. These are both critical additions that help give workers the opportunity to save—perhaps 19 million or more that don’t currently have access to that opportunity at work. There are also things that help workers save—things like automatic enrollment, of course, and the student loan matching provisions, but also the expanded Saver’s Match, which recent projections suggest could help more than 108 million Americans with more retirement savings.”

For older workers who find themselves behind in their savings, SECURE 2.0 grants them higher “catch-up” provisions. Half of the workers answering the survey said they would take advantage of increased catch-up savings limits. (The survey did not indicate how many of these workers were already maxing out their catch-up.)

“Secure 2.0 could address some of Americans’ worries that they will not have enough money in retirement,” says Wagner. “For example, one of the provisions would allow workers closest to retirement age to increase the amounts they contribute to their 401(k)s, to help them ‘catch up’ on their savings.”

Does SECURE 2.0 represent a game-changer for retirement savers? It will be hard to tell. Many of the most significant changes introduced in the original 2019 SECURE Act have yet to realize their full potential.

“There are a lot of new opportunities in the new legislation but consider how the Pension Protection Act transformed the savings landscape with the enormous increase in participation following its support for automatic enrollment,” says Graff. “SECURE 2.0 takes that a step further in requiring it for new plans. The data is clear that automatic enrollment works and provides comfort to participants in terms of helping them get started and taking that decision out of their hands.”

So, Merry Christmas, Happy New Year, and save more in your 401(k) because, thanks to SECURE 2.0, more will have the opportunity to save, and those with the greatest need will have the opportunity to save more.