‘Secure 2.0’ retirement bill clears Senate committee hurdle in 28-0 vote

Amid Jan. 6 testimony, gun safety legislation passage, COVID-19 hearings, and historic Supreme Court decisions, Congress this week quietly took a major step toward expanding opportunities for Americans to increase their retirement savings and build long-term financial well-being.

With a unanimous 28-0 vote the U.S. Senate Finance Committee passed the Enhancing Americans Retirement Now (EARN) Act, which builds on the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 and is based in part on the Retirement Security and Savings Act of 2021.

If it meets final passage in both the House and the Senate, the bill would, among other things:

• Encourage small businesses to adopt retirement plans
• Make it easier for part-time workers to participate in retirement plans
• Provide workers and retirees the ability to save more and save longer

The bill, which has been dubbed SECURE 2.0, also makes changes to allow more flexibility for emergencies, such as penalty-free withdrawals for terminally ill patients, domestic abuse survivors, and people affected by federally declared disasters.

“We have strong bipartisan momentum to address the anxiety and insecurity that many workers and retirees have about their ability to accumulate sufficient savings to provide them with sustainable income during their retirement years,” said Wayne Chopus, president and CEO of the Insured Retirement Institute, which lobbied for the bill. “IRI looks forward to working with the House and Senate to finalize a comprehensive bill that will put individuals on a path toward a secure and dignified retirement.”

In a detailed letter to the committee ahead of its vote, Chopus pointed out that workers and retirees today are at an increased risk of outliving their retirement savings due to longer lifespans.

Current law requires that workers and retirees must begin taking minimum distributions from retirement savings accounts when they reach the age of 72. The EARN Act would increase the age at which distributions are taken to age 75, enabling workers and retirees to keep their savings in tax-deferred retirement savings longer.

Reforms, modernizations proposed

Additionally, the measure makes other much-needed reforms to modernize the distribution rule, including updating the mortality tables to reflect longer life expectancies and modifying the rules to exempt certain annuity benefits and payments from the minimum income threshold test to reflect more current circumstances regarding individuals’ working years and longevity.

The enhancements in the bill are much needed, Chopus said, because workers and retirees are chronically under-saved, not just for retirement but also for short-term expenses and emergencies.

Several studies have found that fewer than four in 10 Americans have savings to cover unexpected expenses of $1,000, and 35% now have less in savings accounts than they did before the pandemic. A study conducted by the Transamerica Center for Retirement Studies found that nearly 20% of workers reported contributing less to workplace retirement plans, and one in five either withdrew or plan on withdrawing funds from retirement savings as a result of the financial effects of the pandemic.

Growing need for long-term care

Chopus also cited the growing need for long-term care for retirees, for which many are not financially prepared,

“Recent studies suggest that 70% of people turning 65 expect to need long-term care in their lifetime,” Chopus wrote. “However, the current public long-term care insurance financing system is stretched thin as millions of American retirees and their families are forced to tap into savings to pay for the increasing costs associated with long-term care needs. Most Americans either do not understand the financial risks associated with a long-term care event or do not adequately prepare for the costs of long-term care as a part of their retirement plan.”

The EARN Act would allow distributions from tax-exempt retirement savings accounts to pay costs associated with long-term care insurance up to $2,500 per year. Further, the EARN Act exempts these distributions from the 10% penalty if taken early.

During committee debate on the bill, senators said they expect to engage with the House to negotiate a final legislative package. Congress has until the end of the year to complete passage and the IRI and others are optimistic it will be attached to a final retirement bill.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at doug.bailey@innfeedback.com.