Employee Benefits

The Secure Act 2.O and the War on Retirement

By Jim Trujillo

Before we jump into another exhilarating talk around 401(k) legislation (please sense my sarcasm), I want you to take a few seconds and ask yourself why it all truly matters. Sure, 401(k)s are an incredibly important part of a company’s total benefits package. And with the current employment climate, I’m sure your company is considering your benefits package now more than ever before. We are all fishing shoulder to shoulder out of a shallow talent pool and the talent “ain’t bitin’.” But that’s not why 401(k)s were originally created, and we know that.

It’s easy to lose track of the hundreds of different crises going on in the world and in our life but there is one that stands out and has inspired me enough to want to try and make a difference. One that impacts everyone in the country, especially HR pros and the companies they work for. I’m referring to the retirement crisis in America and 401(k)s are the secret weapon to combating it.

As a 401(k) advisor who coaches participants on their finances, I consider myself – and my team – on the front lines of the war on retirement readiness. I can tell you; it is not a pretty sight. It’s sad to say but in many cases, employees are struggling to actually retire at retirement age, and instead are working well past 65. Some of the main reasons why include:

The Social security funding guarantee is expected to end in 2035 (Source: SSA.gov). People should never rely solely on Social Security for retirement. It wasn’t built for that, but it was built to supplement their retirement income and now it is questionable how much it will even be able to do that.

People are living longer than ever before with healthy males living to 84 and healthy females living to 86. Don’t get me wrong…modern medicine is amazing, and I hope to be lucky enough to live that long but doing so brings on a huge investment risk that people don’t think about enough…outliving your money. People are needing to save more than ever before because of longevity. (Source: United Nations – World Prospects)

Only 56% of workers are enrolled in a 401(k) plan while 72% had access. (Source: Transamerica Center for Retirement Studies). This reveals two major problems. One is that not every worker even has access to a retirement plan and secondly is that not everyone who has one is taking advantage of it.

The suggested amount of savings needed to continue your lifestyle in retirement has jumped up to a staggering $1,040,000. (Northwestern Mutual Planning & Progress Study 2021).

With stats like those, it feels like our people are fighting an uphill battle but luckily the government is stepping in to provide some much-needed reprieve. Their secret weapon…the Secure Act 2.0.

As we know, there have been variations of this legislature all with the same goal in mind; to help Americans retire. This most recent version, passed by the House in March, may still see some changes as it makes its way through the Senate, but with bi-partisan support it is believed to have strong enough momentum to be able make it to the president’s desk and signed into law.

There are many great provisions being considered but some are standing out to Plan Administrators more than others:

Long-term, part-time Employees may now be eligible for retirement benefits – I believe this is in place for those older employees who may be working part-time to supplement their retirement income. With this provision, it can give them hope that they may not have to work PT forever. That they can save and receive a match so that one day they can fully retire.
Increased Catch-Up Limits – As a financial coach I’m constantly reminding employees of a golden rule and that is to save 10-20% to help them reach their retirement goals. But as someone who has a home, and two young children, I can speak from personal experiences when I say things come up. You may not always be able to hit that mark but as you get closer to retirement it is as important as ever to get there and maybe even go beyond it. The age 50 catch-up has helped in this way but this new provision would help those over 60 to save at an even higher rate with a $10,000 catch up limit.
Roth Matching Contributions – On the opposite side of the spectrum, we have the younger generation that, because of compounding interest, we can truly help to shape their future retirement. Until now, matching dollars were always made as a Pre-Tax contribution even though we know younger employees should be saving Roth. This new provision will help these future generations create even greater tax-free buckets of retirement savings.
Student Loan Payments – How hard is it to find new talent right now? Our workforce landscape has been changing rapidly for years with most of it now being comprised of millennials and younger. With that, as a millennial myself, I can safely say that your future talent doesn’t have your 401(k) offering as the end all be all benefit. We want instant gratification and to feel free to do what we want. But our generation is burdened by student loans which is crippling our ability to do anything other than put all our discretionary cash towards paying down that loan as quickly as possible. This wonderful provision will allow employers to consider the employees monthly student loan payment as a contribution to their retirement account and thus the company will add the match to their 401k account. They get to pay down their debt while also saving for their future. It is very exciting especially as we are all fighting for that young talent’s attention.

While this Legislation continues to make its way to law, the final outcome is still uncertain. The 401(k) industry and HR professionals alike are very optimistic that the main provisions will stay in place and will lead to a turning of the tides with the current retirement crisis. But until it is signed and official, there are still things you can do to help your employees fight to get on track. Such as creating a financial wellness program tailored to your employee base.

I’ve heard too many stories of companies throwing together a program and it being a complete bust because they didn’t customize it for their people. Like any other project you’ve worked on before, creating a wellness program should start with setting realistic goals. Do you want to help your employees reduce debt? Bring in a debt specialist. Do you want to increase retirement readiness? Bring in a financial advisor. Do you want everyone to have great credit? Educate them on how to increase their credit score. Creating a cookie cutter program just to check a box won’t give you, your leaders and your employees the wellness offering they are looking for.

Helping your employees in their current situation is a priority but the retirement crisis must be thought of as a long-term issue and it’s important to remember that you don’t have to do this alone. Consult with your current benefits providers to see what services they have around financial wellness. If by chance they can’t assist, then consider finding a financial advisor that will. As a proud 401(k) advisor myself, I can say there are many of us able and willing to fight the good fight and make a difference in your employee’s future. With the government stepping in with the SECURE Act 2.0 as well, the final piece missing is you. I want you to ask yourself, how do you plan on joining in on the battle?