After SECURE 2.0, what's next for retirement legislation?

With retirement laws changing quickly, what might be in a 'SECURE 3.0'?

January 15, 2023 6:00 AM

The wealth management industry already has ideas for the retirement reforms Congress should pass next.

Retirement savings incentives are changing rapidly. But while two legislative packages — the SECURE Act and SECURE 2.0 — created new provisions to help Americans boost their nest eggs, they also left some ideas on the cutting-room floor.

Those elements — call them SECURE 3.0 — could potentially help millions of savers stockpile more amid what economists call a retirement crisis. According to one study by the Federal Reserve, only 36% of Americans say their retirement savings are on track; some 27% have no savings at all. And among those who have already retired, most have defined-contribution plans like 401(k)s, which research shows tend to be spent down faster than the pensions of yesteryear.

"SECURE 1 took a step forward; SECURE 2 took another step forward," said Paul Richman, the chief political affairs officer at the Insured Retirement Institute (known as IRI). "But there's still a lot more that can be done and should be done."

With 2019's Setting Every Community Up for Retirement Enhancement (SECURE) Act and last December's SECURE 2.0 package now law, here are four issues facing policymakers going forward:

Expand auto-enrollment

One major reform of the most recent package expanded auto-enrollment of workers in employer-provided retirement plans. (Workers can choose to opt out, but few do.) Research has shown that automatically signing up employees greatly increases plan participation rates — in fact, a Vanguard study showed that it tripled them.

But SECURE 2.0 didn't mandate that process for all plans. The law only applies to newly created 401(k)s (offered by for-profit companies) and 403(b)s (offered by charities and public schools), both starting in 2025. All existing 401(k)s and 403(b)s are "grandfathered," meaning the rule does not apply to them. And many employers are exempted: churches, government agencies and businesses that have been operating less than three years or have 10 or fewer employees.

Dave Stinnett, the head of strategic retirement consulting at Vanguard, hopes future legislation will cover more plans.

"We would certainly like to see Congress continue to build on the success that we've seen on auto features," he said. "Many existing plans already use these features, but not all. So it would be good for Congress to be thinking through how best to encourage and nudge plan sponsors to incorporate these best practices."

Catch-up contributions for caregivers

SECURE 2.0 raised the limits for annual catch-up contributions to 401(k)s and individual retirement accounts by savers aged 60-63 starting in 2025. But Richman says it overlooked a core group of people: those who had to temporarily stop working — and, therefore, stopped contributing to their plans — in order to care for an ill or aging family member. The ongoing COVID-19 pandemic gives this issue extra urgency. Richman believes such workers should have a chance to catch up on their savings once they return to work.

"Let's say you're in your 30s and you had an elderly parent, and the only way you could provide care… was to leave your job," Richman said. "After four or five years of doing that — God forbid it should happen to anybody — if your parent passes away, you're not going to stay out of the workforce … but you've lost four to five years when you would have been saving for retirement."

The solution, Richman said, is in a bill that's been introduced in Congress but didn't make it into Secure 2.0. Under the Expanding Access to Retirement Savings for Family Caregivers Act, caregivers under age 50 would be allowed to make catch-up contributions for as many years as they were out of the workforce.

"This would allow you at least some benefit of catching up during your working years, rather than having to wait until you're 50 to make contributions," Richman said.

Fewer paper statements

Both IRI and Vanguard want to expand the right of employers and plan providers to send customers information over the internet, instead of by mail.

"When you communicate with people electronically, it's faster, it's cheaper and often it will drive participants to the website, where they will also see … new services that might be available," Stinnett said.

One way Congress could do that is by passing the E-SIGN Modernization Act, a bill that would update the regulations in a 23-year-old law: the Electronic Signatures in Global and National Commerce (E-SIGN) Act of 2000. Richman said the new bill would remove E-SIGN's "outdated" requirements for online communications, without taking away the option to receive paper statements.

"When that original bill was enacted, there was concern that consumers wouldn't be able to access the internet and the programs necessary to receive electronically transmitted documents — which 20 years ago might have been the case, but it's not so now," Richman said.

Expanding the reach of 403(b)s

One change that some industry advocates experts hope for has to do with collective investment trusts (also called collective investment funds). These pooled investments are similar to mutual funds, but are regulated by different agencies and typically offer lower costs.

The problem that IRI and Vanguard want to fix is a matter of access: Under current law, 401(k)s are able to invest in the trusts, but 403(b)s are not. Stinnett called this an "anachronism of past legislation."

"We would really like to see that done," Stinnett said. "It's something that, of course, is permitted in 401(k) plans, and we just think, as a matter of equity and fairness, they should be allowed for 403(b) plans as well."