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Workers and retirees are getting some holiday treats from Washington

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American workers and retirees are getting nice holiday gifts from Washington.

As part of a larger bill to keep the government running, Congress passed and President Biden signed something called Secure 2.0, which will make it easier for millions of Americans to put more money away in their workplace retirement plans.

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

Finally, 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.

To read: New Recovery Contribution Limits Could Boost Your 401(k) — If You Can Afford Them

This last change is potentially significant because there are an estimated 26 million Americans who, for various reasons, only work part-time. Why should retirement plans only be available to full-time workers? Last week’s bill builds on legislation from 2019 that requires employers with 401(k) plans to allow long-term part-time employees to join, including those with one year of service (with 1,000 hours) or three consecutive years (with 500 service hours). . Starting in 2025, the new bill will cut that waiting period by one year — meaning part-time employees will be able to sign up for their employer’s plan after two years instead of the current three.

To read: Secure 2.0 401(k) auto-enrollment to help retirement savers

But now let’s read the fine print. Secure 2.0 automatically enrolls part-time workers in their employers’ retirement plan unless they opt-out – but that’s only if the retirement plan is new. Existing plans do not need to automatically enroll their employees. Then there’s this: Many employers still don’t offer retirement plans in the first place, making this whole thing moot for many workers—the same ones who need to save more for retirement.

Every nickel workers can save matters, given study after study showing how little tens of millions of Americans have saved. How little? According to investment giant Vanguard, the average old-age retirement savings are downright scary:

Age

Average

median

under 25

$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 middle column on the right that concerns me. Median means half have less and have more, which means half of Americans ages 55 to 64 have less than $89,700 in their retirement accounts. How far do you think this will go, especially at a time of high inflation? As I’ve mentioned many times before, just one item alone — out-of-pocket health costs for a couple retiring at age 65 — is, according to Boston investment giant Fidelity, estimated at $315,000. So yes, making it easier for everyone to save more – or anything – is more important than ever.

Despite its limitations, I am encouraged that, in this era of political polarization, Secure 2.0 has garnered bipartisan support, drawing “yes” votes from opposites like Mitch McConnell, right-wing Republican senator from Kentucky, and Alexandria Ocasio-Cortez, senator from New York . left representative. This, perhaps, could bode well for future efforts to address America’s retirement crisis.

In fact, a bill intended to develop Secure 2.0 was just introduced in Congress two weeks ago. It is also bipartisan, as it has both Republican and Democratic sponsors in the House and Senate. It’s called the Americans Retirement Savings Act of 2022 (RSSA), which proposes a very big change: a single federally-run 401(k) retirement plan for workers without an employer-sponsored retirement plan.

That would be a big deal, as 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 – for retirement. Workers can switch jobs without having to worry about accessing a plan; the assets would go into a low-fee diversified investment fund. And they would get compensation in the form of a refundable tax credit, not from their employer, but from the federal government.

Of course, where the money would come from will be a huge 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 eligibility ages, or reduce benefits – or a painful combination of the above. In this context, launching yet another federally funded retirement program is likely to be politically difficult.

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