SECURE 2.0 Act Still Leaves Holes in US Retirement Plans

Congress is on the verge of passing a bill called SECURE 2.0 to help American workers save for retirement. Support is bipartisan: Mitch McConnell and Alexandria Ocasio-Cortez both voted for it. But although there are some good pieces to the legislation, no one should confuse it with a solution to the nation’s retirement crises. And in fact, a better alternative was introduced in Congress just a couple of weeks ago. It also has bipartisan support. That bill, known as the Retirement Savings for Americans Act of 2022 (RSSA) would have been the better investment.

Reform is badly needed. Our current retirement system is inefficient and patchy, and the system disproportionately benefits those with high incomes. Most workers lack consistent workplace retirement plan coverage, a main driver of inadequate savings and retirement inequality. Up to 40% of middle-income older workers are at risk for downward mobility into poverty or near-poverty in old age. About half of American households aren’t saving enough to sustain their standards of living after retirement.

Even for workers with an employer-sponsored plan, there are issues of portability and inefficiency. After age 25, workers have, on average, six different employers. Women are twice as likely to cycle in and out of the labor force. Every move means withdrawing retirement money, juggling multiple accounts in old age, or risking switching to an employer without a plan. The plethora of plans also creates inefficiency: The 600,000-odd 401(k) plans in the US duplicate the same paperwork and forgo the discounts and service quality that only the hugest accounts get.

And yet SECURE 2.0 does little to spread retirement plans to the 57–63 million workers without one or make marked improvements for workers who have an inadequate plan.

The people the legislation is most likely to help are professionals in the retail money management industry and households with substantial assets. Provisions in the bill will help the wealthy avoid paying taxes by raising the age people are required to start withdrawing money from their tax-deferred retirement accounts — from age 72 to age 75. That means they can leave their money tax-sheltered for longer; this is good news for the investment industry, because it will encourage people to leave their money in managed accounts for longer. The law also raises retirement savings contribution limits for older workers — most likely impacting high earners — that will allow people aged 6264 with an extra $10,000 to spare to increase their tax-favored savings.