As saving for retirement becomes more challenging or less of a priority for many workers across the country, a provision in the SECURE Act 2.0 will help make effective retirement contributions a reality for many younger workers.
Aside from the SECURE Act 2.0’s broadest implications with a shift in the age of Required Minimum Distribution, the piece of legislation will make saving for retirement even easier — especially for workers beginning their careers, according to Lancaster-based financial advising firm Conrad Siegal.
“If you look at many of the statistics, it says that savings toward retirement are incredibly low,” Brooke Petersen, investment consultant at Conrad Siegel, said.
Many of Conrad Siegel’s clients are working toward that savings, but Petersen said the national trend is that many Americans are behind on retirement contributions.
“Many people think that they can make up for it later, but from an investment standpoint, the earlier people begin to save, the more that investment will compound,” Petersen said. “We tell our clients that anything they can do to save earlier in their career, the better, and the SECURE Act 2.0 will certainly help with that.”
The piece of legislation, which stands for Securing a Strong Retirement, is broad and has many components, but there are two provisions that will work together to benefit these younger workers in a direct way.
For many fresh out of college workers, student loans are the largest financial obligation and priority. “These people are actively repaying their loans, but they may not have enough income to make a meaningful retirement contribution,” Petersen said.
In both the House and the Senate versions of the SECURE Act 2.0, workers who are making those loan payments responsibly, but who aren’t contributing to a 401k, will be eligible to receive a matching contribution from their employer based on the continuation of on-time payments. “There is certainly a savings mismatch for young workers,” Petersen said. “And this will help fill that gap tremendously.”
The second provision that works in unison with the 401k match to student loans is an automatic enrollment in a 401k plan.
Although employees are given the option to opt out of the plans they are enrolled in, Petersen said the ease of being automatically contributing may be just enough incentive for those young workers to keep saving.
“Yes, you can opt out, but we would predict they are very unlikely to opt out of plans they are automatically placed into,” Petersen said. “This will get a whole lot more people to start contributing early.”
The demand of initial paychecks for those new to the workforce can be overwhelming, but one thing Conrad Siegel stresses is saving early. “Even if it’s a small amount when you’re young, it’s all about compounding growth over time,” Petersen said. “And these two aspects of the new SECURE Act will work in favor of that.”
The first SECURE Act was passed at the end of the legislative year in December of 2019.
Although many of the provisions in the first iteration of the bill were on the financial community’s radar for a long time, Petersen said it was a surprise that it passed with such ease and so quickly.
“A lot of us in the financial industry were scrambling to find out what specifically was in the bill and to find out what the implications were,” Petersen said.
Being a follow-up to the first bill, the SECURE Act 2.0 has been expected and anticipated, as a bill that fills in the gaps that the first left opened.
The House passed their version of the bill in March of 2022 with little resistance and the Senate is expected to do the same. Although their respective bills look slightly different, their provisions appear equally impactful on savings accounts.
“This bill has bipartisan support,” Petersen said. “It is pretty likely to get over the finish line and all seem to be impacted favorably by this legislation.”
Petersen said the sequel to the SECURE Act should follow the same time frame as its predecessor as a late-season bill attached to a larger spending bill.