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

Tucked into the $1.7 trillion 2023 government spending bill that lawmakers unveiled Tuesday are a series of key reforms to help Americans save more for retirement.

These include raising the age for required minimum benefits from pension plans to urging companies to enroll more employees in plans. The bill also includes ideas that could help younger people save more earlier in life.

The measures — which begin at page 2,046 of the massive 4,155-page bill — mean that the long-delayed pension reform legislation known as SECURE 2.0 is now likely on its way to becoming law this weekend and would begin addressing what will be a retirement savings crisis in the US

“Americans deserve a dignified retirement after decades of hard work, and our bill is a major step forward,” Ron Wyden (D-OR), chairman of the Senate Finance Committee, said in a statement Tuesday. Wyden was one of many key players behind the bill alongside Sen. Mike Crapo (R-ID), Representative Richard Neal (D-MA), Representative Kevin Brady (R-TX) and others.

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

People wearing masks to protect against the coronavirus disease (COVID-19) walk past the Capitol in Washington, US, September 4, 2022. REUTERS/Elizabeth Frantz

Visitors to the US Capitol in Washington in September. (REUTERS/Elizabeth Frantz)

Paul Richman of the Insured Retirement Institute adds that “Congress stands ready to help millions of workers and retirees with significant improvements to the nation’s private pension system. [and] will add billions to retirement savings for small business workers, part-time workers, student loan debtors, military spouses, low-income workers, and others.

The massive general bill will also fund the government through 2023 and comes with a range of other notable measures, such as a review of how electoral votes are counted during presidential elections and a TikTok ban on US government devices.

What the bill would do

In a note Tuesday morning, Stifel Chief Washington Policy Strategist Brian Gardner explained how “the bill would expand retirement savings options by allowing for deferrals of mandatory withdrawals, increased catch-up contributions to 401(k) plans, and provide new options for small businesses. to offer pension schemes to employees.”

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

WASHINGTON, DC - MARCH 31: (L-R) Committee Chair Senator Ron Wyden (D-OR) and Leading Member Senator Mike Crapo (R-ID) attend a Senate Finance Committee hearing on Capitol Hill March 31, 2022 in Washington, DC DC .  Tai testifies on President Biden's fiscal year 2023 budget request. (Photo by Drew Angerer/Getty Images)

Senate Finance Committee Chair Senator Ron Wyden (D-OR) and Senior Member Senator Mike Crapo (R-ID) at a hearing in March. (Drew Angerer/Getty Images)

An overall goal of the likely new law is a variety of ways to get companies to get more people into retirement plans.

One of the fronts is new incentives around automatic enrollment in pension schemes. The new rules would push employers to automatically include their new hires in the company’s retirement plan as part of the onboarding process. Studies have shown that employers with auto-enrollment pension plans have much higher participation rates.

Other areas of focus include making it easier for small businesses — which face hurdles in offering plans because of their size — to offer retirement plans. It would also allow more part-time workers at companies of all sizes to enroll.

Another important part of the bill would change the age at which people must start taking mandatory benefits from their private pension plans. The SECURE law increased the minimum age requirement for distribution from 70 to 72. Now, under the spending law introduced on Tuesday, the age requirement would rise again to 73 from January 1, 2023, and then to 75 in 2033.

The bill also increases so-called catch-up contributions allowed for savers aged 62 to 64.

(L-R) Mildred Kerrigan, 97, and her son, Kevin Kerrigan, 65, visiting from Westchester, NY, ride in a golf cart amid coronavirus event cancellations at Brownwood Paddock Square in The Villages, Florida, U.S. , ahead of the upcoming Democratic primary, March 15, 2020. REUTERS/Yana Paskova

(L-R) Mildred Kerrigan, 97, and her son, Kevin Kerrigan, 65, visiting from Westchester, NY, ride in a golf cart amid coronavirus event cancellations at Brownwood Paddock Square in The Villages, Florida, U.S. , ahead of the upcoming Democratic primary, March 15, 2020. REUTERS/Yana Paskova

The plan also has a new idea of ​​treating student loans as deferrals for retirement savings. That means student loans and retirement savings can be effectively linked if an employer chooses and offers a plan that allows an employee to put some money aside for retirement while addressing more pressing financial concerns.

There are similar provisions that could make a link between pension and emergency savings in the coming years.

“Some people have been left on the sidelines of retirement savings,” Kathleen Coulombe, vice president of the American Council of Life Insurers, recently told Yahoo Finance Live. She represented one of many groups hoping to pass the bill, adding: “It’s really trying to help a lot of these vulnerable populations.”

Other changes include updates to the SAVERS credit, which gives certain lower-income workers extra tax breaks when they save 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 will run out of money as early as 2034. The bill has its critics, with some noting that many of the reforms would be better and more effective if they were accompanied by changes to the social safety net program. But lawmakers have long been wary of any changes to Social Security itself, often referred to as “the third rail of American politics.”

Next steps

Experts are still mulling over the provisions – which span hundreds of pages – but the bill looks set to change the retirement landscape for years to come, with some provisions taking effect as early as January 1, 2023.

The Senate is the first to act and could vote on the general omnibus measure as early as Wednesday. This move will be the big test of the overall package with at least 10 Senate Republicans needed to join Democrats to pass the effort.

On Tuesday morning, the office of Senate Minority Leader Mitch McConnell sent out a press release with words of support for the blanket deal — and made passage more likely — saying the blanket deal “meets … conservative policy guidelines.”

If it passes the Senate, the huge spending measure would go to the House of Representatives, followed by President Biden’s office. The measure is urgent as lawmakers scramble to finalize it by Friday — both to avoid a government shutdown and to get home for Christmas.

Ben Werschkul is a Washington correspondent for Yahoo Finance.

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