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Secure Act 2.0 Is Popular, but Not Perfect, Retirement Experts Say

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What You Need to Know

  • Auto enrollment doesn’t address the problems of opt-outs and leakages, says Teresa Ghilarducci.
  • PBGC should not hold lost accounts and invest the balances in U.S. Treasury bonds, said AEI's Biggs.
  • IRI is optimistic that the House will act on bipartisan retirement legislation, which includes Secure Act 2.0, this year.

The Secure Act 2.0 provides important benefits to help boost Americans’ retirement savings, but the huge retirement bill does have drawbacks, retirement experts told House lawmakers.

Secure Act 2.0 — officially, the Securing a Strong Retirement Act — was part of a review of the nation’s retirement system during a hearing held Wednesday by the House Health, Employment, Labor and Pensions Subcommittee.

On May 5, the House Ways and Means Committee passed the Secure Act 2.0, which raises the required minimum distribution age from 72 to 75, expands automatic enrollment in retirement plans and enhances 403(b) plans, among other provisions.

While “Secure Act 2.0 is a good baby step, ensuring employees the benefits of automatic enrollment,” Teresa Ghilarducci, director of The New School’s Schwartz Center for Economic Policy Analysis, told ThinkAdvisor Wednesday, “it doesn’t address the problems of opt-outs that can decrease coverage and leakages that allow people to deplete their savings before they retire.”

Added Ghilarducci, who testified at the hearing: “We need to build towards a comprehensive solution that gives workers a path to a secure retirement, and that means creating universal pension plans that professionally invest people’s savings over the long term.”

David Certner, legal counsel and legislative policy director at AARP, told lawmakers that AARP supports Secure Act 2.0, or H.R. 2954, as it would “extend greater coverage to more part-time workers and automatically enroll workers in new employer retirement savings plans once they have been in business for three years and employ more than 10 employees.”

Automatic enrollment, Certner said, “dramatically increases enrollment of the workforce,” usually sparking a jump in employee participation in company retirement plans from “anywhere around 50% to around 80%.”

Automatic payroll deduction, Certner said, “is a proven method of increasing coverage and participation” in workplace retirement plans.

Certner said AARP urges lawmakers to improve coverage for the 27 million part-time workers who generally are not covered by retirement savings plans.

“This is especially important for older workers and caregivers who often shift from full-time to part-time work or return to the workforce less than full-time due to caregiving responsibilities,” Certner testified. “Moreover, women are far more likely to work part time than men — two-thirds of part-time workers are women.”

Like the Secure Act of 2020, which “was the most important and far-reaching retirement saving legislation since the Pension Protection Act of 2006,” Secure Act 2.0 “is in that same tradition,” Andrew Biggs, Resident Scholar at the American Enterprise Institute, told the lawmakers.

The bill’s “worthy improvements,” Biggs said, include expanding automatic enrollment in 401(k) plans to all new employees, increase tax incentives to employers who offer retirement plans, and “expand retirees ability to convert their 401(k) balances to an annuity that offers benefits for life.”

Secure 2.0, he continued, would also open up multiple employer plans to nonprofits who offer 403(b) plans as well as simplify reporting requirements for small businesses.

While another positive aspect of the bill is that it would establish a new database of lost retirement accounts, Biggs said he’s wary of the bill’s plan that the Pension Benefit Guaranty Corp. hold lost accounts and invest the balances in U.S. Treasury bonds.

“Private entities have greater experience as account administrators,” Biggs told the lawmakers. “Moreover, given that many lost accounts are from young employees and may sit for years before being claimed, I would prefer to see these accounts remain invested in a retirement-appropriate portfolio mix of stocks and bonds that could grow over time. This would cost more initially but would bring benefits to savers over time.”

Aliya Robinson, senior vice president of Retirement and Compensation Policy at the ERISA Industry Committee, or ERIC, in Washington, told ThinkAdvisor Thursday in an email that positive aspects of Secure Act 2.0 are the “matching contributions for student loan payments, expanding the self-corrections process, consolidating notice requirements, increasing the required minimum distribution (RMD) age [to 75], increasing catch-up limits in plans, clarifying the recovery process for retirement plan overpayments, and creating a pension registry.”

However, Robinson said one area of concern in the bill pertains to electronic delivery.

Secure Act 2.0 “rolls back final DOL rules issued on electronic delivery by requiring plan sponsors to deliver at least one paper quarterly benefit statement per year for defined contribution plans. Not only does this provision impose an annual paper disclosure that is not required by the regulation, but it also requires a disclosure that contains individualized information and can often exceed several pages.”

If Congress decides that an annual disclosure is necessary, Robinson continued, “we urge them to consider a short and generic notice — i.e., a ‘postcard notice’ — which can be provided more easily and quickly than a benefit statement.”

Paul Richman, chief government and political affairs officer at the Insured Retirement Institute, added in a statement that IRI remains “optimistic” that the House will act on bipartisan retirement legislation, which includes Secure Act 2.0, this year.