SECURE Act 2.0 will make retirement savings automatic — how employers can prepare

With the end of the year fast approaching, there is still the possibility that retirement savings strategies will get a bipartisan boost. 

SECURE Act 2.0 is currently awaiting a final vote in Congress — the pending legislation is anticipated to be a package of several retirement-related bills, expanding on provisions laid out in the original SECURE Act, which passed in 2019. 

Parts of the legislation have already passed separately through either the House of Representatives or the Senate. Congress will need to combine these various acts into one piece of legislation, SECURE 2.0, and then pass the combined bill through both chambers by the end of the year, though no official date has been set. However, the fact that both parties are coming together on this issue is a very positive sign, says Dave Stinnett, head of strategic retirement consulting at Vanguard. 

"There's a feeling that there is a bipartisan approach and agreement on the principles with what's going to be in this retirement bill," Stinnett says. "It's a signal from policy makers that 401(k) plans or defined contribution plans are extremely important and central to the American worker and their retirement readiness, so there's an effort to change or evolve them to make them even stronger." 

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SECURE Act 2.0 includes a variety of provisions plan sponsors and employers will need to keep in mind if and when the bill is passed — one such element is to require that all new employees be automatically enrolled in a 401(k) or 403(b) plan when starting with a company. Employees would automatically have 3% of their pay invested into a plan, with a 1% increase every year, until they reach a 10% contribution rate. 

The automatic nature of retirement savings is hugely beneficial to savers: research from Vanguard found that 92% of employees continued to save in their 401(k) plan three years after being enrolled — that number drops to just 29% when employees voluntarily participated in a workplace retirement plan.  

"[Policy makers] are really incorporating auto best practices that many of us in the retirement industry have long understood to drive the best results," Stinnett says. "These are features that they're trying to incorporate to make it as easy as possible for people to participate in plans and start saving early." 

Read more: 5 ways 'SECURE 2.0' legislation could change retirement savings

Another area that will impact an employee's financial wellness is a student loan provision that would allow employers to make contributions into a retirement plan, equal to the amount employees are contributing to student loans. Twenty-six percent of employees with student loans say they have delayed saving for retirement while they pay them off, according to a survey by Bankrate. 

Stinnett points out that while SECURE Act 2.0 is good news for employees, employers will have to do some administrative heavy lifting. However, if and when the legislation is passed, employers will have until January 1, 2024 to work with plan sponsors and payroll vendors to prepare. 

"Fortunately, Congress and their staff have been very sensitive to the effective dates of some of these mandatory provisions," Stinnett says. "Plan sponsors and recordkeepers would have at least a year to work with their clients, and employers would have a year to work with their payroll vendors like ADP to get everything ready." 

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While this legislation is highly anticipated to kickstart retirement savings for millions of Americans, employers don't have to wait to help their workers today, Stinnett says. Ensuring retirement plans have automatic features already in place is something all workplace plans can put in place now, whether or not SECURE 2.0 is signed into law. 

"These automatic features — automatic enrollment, automatic increase and then defaulting you into an age-appropriate target date fund — sound easy, but many people don't do it," Stinnett says. "People are busy or they get intimidated by the complexity of retirement benefits, so despite their intentions, they may not sign up or they'll wait too long. These features are designed to get people in early and invest appropriately." 

Stinnett also advises employers to adopt online communications to engage with employees on their retirement plans and strategies. While not included in the SECURE Act 2.0 legislation, Stinnett hopes to see more streamlined communications in the future, another strategy that can make saving and investing as easy as possible. 

"E-delivery is also a best practice, because paper statements drive up cost, and e-delivery will automatically send you to provider websites where the best thinking and educational programs are," Stinnett says. "A lot of the things that we used to worry about, about getting people into the plan and saving and investing, we're really seeing a positive trend line. We want that to continue."