Proposed Reforms to the United States Retirement System Are Still on the Table in the Congress

By Jessa Martin On Dec 22, 2021

Two years after Congress approved a bill that brought significant improvements to the United States retirement system, politicians’ efforts to make future adjustments are progressing — albeit slowly — in the right direction.

There is bipartisan support in both the House and the Senate for legislation that would build on the 2019 Secure Act, which aims to boost both the number of savers and the amount of retirement security available.

Despite the fact that work on the idea has been delayed, advocates believe that action will be taken by 2022.

“We could see action on the bills in both chambers by the end of the first quarter or the beginning of the second quarter,” said Paul Richman, chief government and political affairs officer at the Insured Retirement Institute.

In the most recent instance, the House Education and Labor Committee adopted the RISE Act (H.R. 5891) last month, which contains a number of retirement-related provisions that fall under its jurisdictional purview.

A portion of it overlaps with another piece of legislation, the so-called Secure Act 2.0 (H.R. 2954), which passed the House Ways and Means Committee earlier this year. Both were unanimously supported by a voice vote in the room.

Meanwhile, two bills have been introduced in the Senate that are identical to those that have been introduced in the House: the Retirement Security and Savings Act (S. 1770) and the Improving Access to Retirement Savings Act (S. 1770). (S. 1703). Neither, however, has been considered by the committee at this time.

The following are some of the most important provisions covered by the legislation.

Minimum payouts that must be made

The Secure Act raised the age at which mandatory minimum distributions, or RMDs, from retirement accounts, must begin to 72 years old, up from 712 years old previously.

According to the House proposal, such obligatory yearly withdrawals would not be required to begin until the age of 73 in 2022, then the age of 74 in 2029, and then the age of 75 by 2032, respectively.

In a similar vein, the Senate proposal would raise the retirement age to 75 by the year 2032. Individuals with less than $100,000 in aggregate retirement assets would also be exempt from required minimum distributions, and the penalty for failing to take required minimum distributions would be reduced to 25 percent from the current 50 percent.

Contributions to make up for lost time

Catch-up contributions to retirement savings are permitted under current legislation for retirees who are 50 years or older and have not yet reached the age of retirement.

Additionally, those who qualify can contribute an additional $6,500 to their 401(k) plan or $1,000 to their IRA in addition to the usual annual contribution limits, which are $19,500 for 401(k) plans and $6,000 for individual retirement accounts in 2021.

Both the House and Senate bills attempt to increase those sums, while the specifics range slightly from one another.

The House provision would alter annual catch-up amounts in accordance with inflation, and it would increase the 401(k) catch-up amount to $10,000 for those who are 62, 63, or 64 at the time of implementation.

Workers enrolled in so-called SIMPLE plans would be eligible to make catch-up payments of up to $5,000, an increase from the present limit of $3,000 each year.

Similarly, the Senate version would index the IRA amount to inflation, but it is more generous with the 401(k) catch-up contribution of $10,000, which would be available to anyone aged 60 and older.

In addition, the House proposal would alter the tax treatment of catch-up funds as a means of offsetting any revenue losses caused by other provisions.

That is, any catch-up contributions to 401(k) plans and other similar arrangements would be considered as Roth contributions – that is, payments made after-tax.

Currently, workers have the option of making those contributions on a pretax or a Roth basis, depending on their circumstances (assuming their company gives them the choice).

Employers can also make matching contributions, but at this time, they can only be done to pretax accounts. If an employee chooses to make post-tax (Roth) contributions, a measure in the House would allow them to be treated.

Student loan indebtedness

Most employers that provide 401(k) plans will match your contributions up to a particular amount — for example, a 100 percent match for the first 3 percent of your contributions, followed by a 50 percent match for the next 2 percent — and then they will stop matching.

When student loan debt prevents employees from contributing to their retirement accounts, they forfeit the opportunity to benefit from the company’s investment in them.

401(k) plans (and other similar workplace plans) would be allowed to make contributions on behalf of employees who are making student loan payments rather than contributing to their retirement plans under the terms of both the House and Senate versions of the proposed legislation.

Auto-enrollment in 401(k) plans is now available.

In the House, a provision would force companies to automatically enroll employees in their 401(k) plan at a rate of at least 3 percent, and then increase that rate each year until the employee is paying 10 percent of their earnings to their retirement account.

Businesses with fewer than ten employees and young businesses (those less than three years old) are among those that would be exempt from the obligation, according to the proposal.

It is not mandatory to participate in auto-enrollment in the Senate’s version, but it does include incentives designed to encourage businesses to use this feature.

Annuities

A qualified longevity annuity contract, often known as a QLAC, is an option for generating an income stream later in life. Once you’ve purchased the annuity, you’ll need to decide when you’d like the income to begin.

The maximum amount that can be put into a QLAC, on the other hand, is either $135,000 or 25 percent of the value of your retirement accounts, whichever is greater.

Provisions have been introduced in both the House and the Senate that would eliminate the 25 percent cap. In addition, the Senate would raise the maximum amount that can be held in a QLAC from $100,000 to $200,000.

Various other things

A national online lost-and-found database for retirement accounts, which workers can lose track of once they leave a job, is being considered by both the House and the Senate, according to the proposals.

Part-time employees who work at least 500 hours over the course of two consecutive years would also be able to enroll in their employer’s 401(k) plan, according to measures in both chambers of Congress.