The government is one week away from a possible shutdown with no deal from lawmakers to fund the government through 2023.
While most observers expect the issue to be resolved one way or another in the coming weeks, the shortfall puts another effort in jeopardy: the long-delayed pension reform legislation known informally as SECURE 2.0.
If enacted, the package would make a number of changes to how Americans save for retirement — from raising the age for required minimum distributions to requiring businesses to enroll more workers in the plans — and help solve the looming retirement crisis for many.
“There was a narrow window for SECURE Act 2.0 to pass, but the window is closing with each passing day,” Stifel Chief Washington Policy Strategist Brian Gardner told Yahoo Finance.
The latest round of negotiations this week ended with leaders on Capitol Hill as far apart as ever. On the one hand, Senate Republican Leader Mitch McConnell (R-KY) claims Democrats are trying to “hijack the government funding process,” while Senate Majority Leader Chuck Schumer (D-NY) is now openly discussing the possibility of a short term. an extension of government funding is likely to stall pension reform efforts for now.
“I hope we don’t go down that road,” Schumer said.
“I think the pressure will start to build on them next week,” Lance Schoening, director of policy at Principal Financial Group, said in an interview Friday. He remains optimistic that a transition is still possible, but notes that his worst-case scenario is a short-term government funding extension that runs through next year.
“Then I think we’re going to have a multi-year effort to bring SECURE 2.0 back into the discussion,” he said.
What the bill will do
The bill aims to follow up on the SAFE Act of 2019, which represents the first major pension legislation since 2006. When that bill passed, lawmakers vowed not to wait that long again, but they’ve seen a roller coaster of ups and downs in their next effort.
The SECURE 2.0 process has been complicated even by Capitol Hill standards, with four committees from both sides involved in nearly two years of negotiations. In May 2021, a preliminary version of the bill passed the House Ways and Means Committee for the first time.
But now, lawmakers have come together on a number of ideas for the final package, and have decided that the best way to pass it is to attach it to a government funding bill. But now, “we just need an unrelated job to be completed to ride it,” Schoening said.
Using the same strategy, the SAFE Act of 2019 was passed as an addition to that year’s appropriations bill and signed into law by then-President Donald Trump on December 20, 2019.
The overall aim of the new package would be to encourage businesses to enroll more people in pension plans, with a focus on small businesses that struggle to offer plans or part-time workers at larger companies who cannot currently sign up.
Another key provision would change the age at which people must start taking compulsory contributions from private pension schemes. The SECURE Act raised the required minimum distribution age from 70 to 72. Lawmakers want to raise it again to 75.
The plan may also change the rules and allow you to link student loans and retirement savings, or emergency and retirement savings. Either way, lawmakers hope to make it easier for Americans to set aside some money for long-term retirement while they address more pressing financial problems.
“There are some people who are on the sidelines of the retirement savings game,” Kathleen Coulombe, vice president of the American Board of Life Insurers, told Yahoo Finance Live recently. He represents one of many groups hoping to push the bill across the finish line, adding, “it’s really trying to help a lot of this vulnerable population.”
Another important measure includes an incentive for employers to automatically enroll new employees in a company pension plan if they qualify. Studies have shown that employers with auto-enrollment pension plans have higher participation rates.
Other ideas include changes to the SAVERS credit, which would allow certain low-income workers to get extra tax breaks when they save for retirement, and the creation of a “clearing house” for workers to find lost retirement accounts.
What Secure 2.0 won’t solve is the Social Security problem, where funds could be depleted by 2034.
An uncertain road ahead
But the bill’s fate is now uncertain as Congress struggles to agree on measures that are not necessarily required to be passed by the end of the year.
Lawmakers are closer to clearing one of those “must-pass” bills, the National Defense Authorization Act (NDAA), but those efforts have eliminated any measures deemed outliers. Proponents of marijuana banking reform, regulation of Big Tech, and energy permit reform planned to add legislation to the NDAA, but instead almost everything was deleted.
Gardner said pension action may still be possible and that “given the bipartisan nature of the bill, it’s possible to attach it to an omnibus or tax-increase bill, but given the lack of progress on each, it’s likely to pass the SAFE Act. 2.0 decreases.”
Congress is set to return to work on the deal on Monday. If lawmakers fail, Schoening said, “we will be in somewhat of a holding pattern in terms of what we see in the pension system going forward.”
Ben Werschkul is the Washington correspondent for Yahoo Finance.
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