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Workers and retirees are getting some year-end gifts from Washington


America’s workers and retirees are getting some great year-end gifts from Washington.

As part of a larger bill to keep government running, Congress passed and President Biden signed, the so-called Secure 2.0, which will make it easier for millions of Americans to keep more cash into their workplace retirement plans.

It will also help low- and middle-income workers who may not be able to save much by providing them with a new benefit equivalent to a savings contribution—up to $1,000 per person. .

Ultimately, it will make it easier for part-time workers to enroll in an employer’s retirement plan, by requiring plans to automatically enroll workers unless they opt out.

Read: The new catch-up contribution limit can boost your 401(k)—if you can afford it

This last change could have significant implications, because about 26 million Americans, for various reasons, only work part-time. Why are retirement plans only for full-time workers? Last week’s bill builds on a 2019 law that requires employers with 401(k) plans to allow long-term part-time employees to join, including those with one year of work (with 1,000 hours) or three consecutive years (with 500 working hours). Starting in 2025, the new bill will shorten this waiting period to one year — meaning part-timers will be able to enroll in an employer’s plan after two years, instead of three. as present.

Read: Automatic 401(k) enrollment in Secure 2.0 to help retirement savers

But now let’s read the fine print. Secure 2.0 automatically enrolls part-time workers in their employer’s retirement plan unless they opt out—but that’s only when the retirement plan is new. Existing plans do not have to automatically enroll their employees. Then there’s this: many employers still don’t come up with retirement plans in the first place, making all of this controversial for many workers — the very people who need to save a lot. than for retirement.

Every penny that workers are able to throw away matters, given study after study shows how much tens of millions of Americans have saved. How little? According to investment giant Vanguard, the average retirement savings by age is downright scary:

Ages

Medium

Medium

under 25 years old

$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

It’s the right average column that I’m interested in. Average means half have less and have more, which means half of Americans ages 55-64 have less than $89,700 in their retirement accounts. How far do you think that will go – especially at a time of high inflation? As I’ve mentioned many times before, the single amount—the out-of-pocket health care expenses for a married couple retiring at age 65—is that, according to Boston-based investment giant Fidelity, estimated $315,000. So yes, making it easier for people to save—or anything for that matter—is more important than ever.

Despite its limitations, I am encouraged that in this age of political polarization, Secure 2.0 has enjoyed bipartisan support, garnering “yes” votes from opponents such as Mitch McConnell, Right-wing Republican senator of Kentucky and Alexandria Ocasio-Cortez, Republican Senator of New York. leftist representative. This probably bodes well for future efforts to tackle the US retirement crisis.

In fact, a bill to build on Secure 2.0 was introduced in Parliament two weeks ago. It is also bipartisan, as it has donors from both the Republican Party and the Democratic Party in both the House and Senate. It is called The American Retirement Savings Act of 2022 (RSSA), proposes a huge change: a single federal government-run 401(k) retirement plan for workers without an employer-sponsored retirement plan .

This would be a huge deal, in that it would allow millions of workers left behind by SECURE 2.0 to be automatically enrolled in a plan, allowing them to save more—or start saving— to retire. Workers can switch jobs without worrying about accessing the plan; assets will be placed in a low-fee diversified investment fund. And they will receive the match in the form of a refundable tax credit, not from their employer but from the federal government.

Where the money comes from, of course, will be a major sticking point, given concerns about the future viability of existing programs like Social Security and Medicare. The only way to strengthen them is to raise taxes, raise the age of eligibility, or cut benefits—or a painful combination of the two. In this context, launching another federally funded retirement program is likely to be politically difficult.

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