A bipartisan bill would mandate the automatic enrollment of eligible employees into retirement plans while allowing employers to match an employee’s student loan payments with contributions to his or her retirement plan, similar to a proposal made in the Association’s Workplace 2020 report.
The Securing a Strong Retirement Act of 2020 is cosponsored by Ways and Means Committee Chairman Richard E. Neal (D-MA) and Ranking Member Kevin Brady (R-TX), who were successful in passing its precursor, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act), in 2019.
Similar to our Workplace 2020 recommendation, employers would be permitted to make matching contributions under a 401(k) plan, 403(b) plan, or SIMPLE IRA with respect to “qualified student loan payments,” the definition of which is broadly defined as any indebtedness incurred by the employee solely to pay qualified higher education expenses of the employee.
New defined contribution plans initiated after January 1, 2022, would be required to automatically enroll eligible participants. Employees would have the option to opt out of coverage for 90 days after being enrolled. Initial contribution rates would be at least 3% and would increase by 1% per year until reaching 10%. All current 401(k), 403(b) and SIMPLE plans would be grandfathered, and employers would be allowed a grace period of 9½ months after the end of the plan year to correct administrative errors in implementing the new requirement. The bill’s automatic enrollment requirement with an opt-out option for employees may prove costly to employers.
The bill would also, among other things, require employers to allow part time workers to participate in their employer’s 401(k) plan after two years of employment working at least 500 hours per year, up from the current three-year eligibility requirement. It would further allow employers to offer small financial incentives for contributing to a plan, index the IRA catch-up limit, and increase limits on catch-up contributions.
Looking ahead: Moving legislation may prove difficult through the rest of 2020, even with broad bipartisan support. However, this bill is expected to have a significant chance of passage, regardless of who wins next week’s elections.