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Congress has welcome news for Americans saving for retirement

Congress has welcome news for Americans saving for retirement
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There is good news if one of your New Years resolutions is to save more for retirement. During the same week that a brutal political battle over impeachment made headlines in Washington last month, you may have missed the story that both parties came together and passed a bill making it easier for millions of Americans to save for retirement.

It is the first major legislation in Congress aimed at improving retirement security in more than a dozen years. Called the Setting Every Community Up for Retirement Enhancement Act, or the Secure Act, it gives more American workers access to 401(k)s, which have proven to be a nearly essential tool for those striving to prepare for retirement.

Americans have used these accounts to accumulate nearly $11 trillion in assets, but about a third of all workers do not even have access to a plan, in part because small businesses find them expensive and cumbersome to set up. The Secure Act allows them to band together and form “pooled employer plans” that will reduce administrative burdens, costs, and risks. To further incentivize those employers to establish plans, the Secure Act increases the small business tax credit for starting a new 401(k) plan tenfold. The legislation also opens up all 401(k)s to workers who are part time on a long term basis, many of whom are left out today.

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The passage of the bill is a credit to both Republicans and Democrats in Congress, particularly Senators Charles Grassley and Ron Wyden and Representatives Richard Neal and Kevin Brady, who put their partisan differences aside in order to ensure that more workers today can sleep better at night when it comes to saving for retirement. For too many, retirement is a source of financial insecurity and anxiety.

Gallup has found that retirement ranks up with health care costs as one of the top financial concerns of Americans. Indeed, the Employee Benefit Research Institute projects that about 40 percent of Generation X are on track to run out of money during their “golden years.” Retirement should be a celebration for older Americans but, instead, millions are asking how they will be able to support themselves for the rest of their lives, not to mention help their family members and children in need.

Another issue tackled by the Secure Act is that a quarter of workers who do have access to workplace savings vehicles today are not even making any contributions. The proven way to boost participation for 401(k) plans is to automatically enroll employees, combating the inertia that defines human nature. While employees are able to opt out, most do not. The Secure Act provides companies that adopt this automatic enrollment “nudge” into their plans with an annual tax credit of $500.

An argument against defined contribution plans, including 401(k)s, is that they give access to a lump sum at retirement and not a lifetime stream of income. The Secure Act will make it easier to add annuities along with other distribution methods into 401(k)s by providing regulatory clarity to the company sponsors. Over time, this could be key to giving people more options to preserve savings and turn them into income.

In a similar vein, the Secure Act also provides workers with more useful information for retirement planning by requiring companies to regularly present how much monthly income worker savings are expected to offer in retirement. Keep an eye out for those projections, which will soon help workers think more realistically about their retirement needs.

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Two of the most popular provisions are sure to be those that give more flexibility to older Americans who contribute and withdraw funds from their accounts. The legislation recognizes that we are now living longer in retirement and provides retirement savings more opportunity to grow by increasing the required minimum distribution age to 72. Those Americans who want to work into their 70s and beyond can now continue to make tax preferred contributions to their individual retirement accounts.

We are grateful that the Secure Act includes several proposals adapted from the Bipartisan Policy Center Commission on Retirement Security and Personal Savings. The elements described above and a handful of other policy proposals will provide tangible benefits to many Americans worried about their financial future. Much more work, however, remains to be done to help all Americans build a secure and happy retirement. We must further address the shortfalls of our current retirement savings system and, very importantly, strengthen Social Security. We certainly cannot afford to wait another 13 years for bipartisan progress to continue.

Kent Conrad is a former senator from North Dakota. James Lockhart is a former principal deputy commissioner and chief operating officer of the Social Security Administration. They served as cochairs of the Bipartisan Policy Center Commission on Retirement Security and Personal Savings.