Workers and retirees are getting some year-end goodies from Washington — and more could be on the way

NEWS Amine 29 Dec , 2022 0

Paul Brandus

All the nickel a worker can salt off is significant given the little savings

American workers and retirees are receiving nice end-of-year gifts from Washington.

Passed by Congress and signed by President Biden as part of a larger bill to keep the government running, called Secure 2.0, millions of Americans will have more cash in their retirement plans at work. to make it easier to store.

It will also help low- and middle-income workers who may not be able to save much by offering a new benefit worth up to $1,000 in savings contributions per person.

Finally, it makes it easier for part-time workers to enroll in their employer’s retirement plan by requiring a plan that automatically enrolls workers unless they opt out.

Read: New catch-up contribution limits can boost your 401(k) – if you can afford it

This last change is potentially important because there are about 26 million Americans who, for various reasons, only work part-time. Why are retirement plans only available to full-time workers? based on a 2019 law requiring the participation of long-term part-time employees, including those working full-time. From 2025, the new bill will reduce this waiting period by one year. That means the part-timer will be able to enroll in her employer’s plan in two years instead of her current three years.

Read: Automated 401(k) Enrollment in Secure 2.0 Empowers Retirement Savers

But let’s read the fine print here. Secure 2.0 automatically enrolls part-time workers into their employer’s retirement plan unless they opt out, but only if the retirement plan is new. Existing plans do not require workers to be registered automatically. Then there’s this: Many employers don’t offer retirement plans in the first place. This makes all this irrelevant to many workers—the very workers who need to save more for retirement.

All the nickel that workers can salt off is significant, given the growing body of research showing how little tens of millions of Americans have been saving. how much? According to investment giant Vanguard, the average retirement savings by age is truly frightening.

Age                                          Average   Median 
under 25                                     $6,300    $1,800 
25-34                                        $37,200   $14,100 
35-44                                        $97,020   $36,117 
45-54                                        $179,200  $61,530 
55-64                                        $256,244  $89,716 
65+                                          $279,997  $87,725 
Source: Vanguard's How America Saves report

My concern is the median column on the right. Median means half have less and more. That means half of Americans ages 55 to 64 have less than $89,700 in their retirement account. How far do you think that will go, especially in a time of high inflation?He only has one out-of-pocket medical bill for a retiring couple at age 65, estimated at $315,000, according to Boston investment giant Fidelity. I’m here. That’s right, making it easier for everyone to save more is more important than ever.

Despite its limitations, Secure 2.0 has found bipartisan support in this era of political polarization, with opposition like Kentucky’s right-wing Republican Senator Mitch McConnell and new president Alexandria Ocasio-Cortez. I am encouraged by the “yes” votes from the faction. Representative of the Left in York. This could, perhaps, bode well for upcoming efforts to address America’s retirement crisis.

In fact, a bill aimed at building Secure 2.0 was introduced to Congress just two weeks ago. It’s also bipartisan, given that both the House and Senate have both Republican and Democratic sponsors. It’s called the Retirement Savings Act for Americans of 2022 (RSSA), and it proposes one very big change. It is a single, federally-operated retirement 401(k)-type plan for workers without an employer-sponsored retirement plan.

This is very important in that the millions of workers left behind by SECURE 2.0 will be automatically enrolled in the plan and will be able to save more or start saving for retirement. is a big problem. Employees could change jobs without worrying about accessing plans. Assets are sent to low-fee diversified investment funds. And they’ll get a match in the form of a refundable tax credit, not from their employer, but from the federal government.

Of course, given concerns about the future viability of existing programs such as Social Security and Medicare, the big question will be where the funding will come from. either an increase in benefits, or a reduction in benefits, or a painful combination of the above. In this context, starting yet another federally funded retirement program could prove politically difficult.

-Paul Brandus

(Closed) Dow Jones Newswire

12-29-22 0858ET