Working Americans got a welcome gift from Congress at year-end with the passage of the 2023 omnibus spending bill. Included in the final bill are several provisions that will impact retirement savers and retirement plan sponsors. These provisions are a part of the formalized legislation titled “SECURE 2.0 Act of 2022”.
This news could not have come at a better time for 401(k), 457 and 403b plan participants. Many people and families are struggling with financial pressures right now as rampant inflation raised prices for nearly everything in the past year. These pressures coincided with renewed market volatility in 2022, leading to a big increase in retirement savers’ “negative behaviors” which can threaten long-term security.
We have seen first-hand how America’s workers reacted to these rising financial pressures. Over the last 18 months, one in ten 401(k) plan participants have either reduced or stopped plan contributions.1 Among our 457 plans for government workers, we’ve also seen an increase in “negative behaviors” which can threaten long-term retirement security. For example, contribution decreases are up 31%, contribution stops are up 17% and withdrawals due to unforeseen emergencies are up 25% year over year2.
This shift in behavior is a sign that many workers need help. We know there are many Americans who lack adequate savings, not only for retirement but also for emergencies or surprise expenses. A survey from the Nationwide Retirement Institute® in 2022 found that 42% of working families couldn’t cover a $1,000 expense if necessary.
The new retirement plan provisions in the recently passed spending bill offer savings solutions for working Americans. This legislation helps ease the choice many workers face between saving for the future and covering unexpected expenses today. Participants will be able to tap their retirement savings without penalty for emergency spending needs, one distribution of up to $1,000 in a calendar year. This provision will help make participating in a workplace retirement plan more attractive for more Americans, as many people want access to their savings in case of emergencies.
Other provisions included in the spending bill aim to make it easier for employers to offer and promote retirement savings benefits to their employees. For example, a new student loan matching opportunity is designed to help younger workers balance the competing financial choices of paying off education debt versus saving for their future. Employers will also see better financial support for starting workplace retirement plans and easing rules for enrolling part-time workers.
As workers continue to cope with financial pressures on many fronts, those of us in the financial services and retirement planning community need to re-engage Americans with the importance of retirement saving. Nationwide has been an active supporter for many years to promote legislative changes that make it easier for Americans to save for their future. We applaud the bipartisan team of Congressional legislators that helped to bring these proposals to law for the millions of workers who will benefits from these changes.
It’s gratifying to see these efforts come to fruition with the inclusion of these retirement regulation changes in the recently passed spending bill. We look forward to helping more American workers and employers take advantage of these new rules to help improve their future financial security.
Turn to Nationwide to stay up-to-date on the latest news about SECURE 2.0 and other retirement plan legislation. We can help you and your plan sponsor clients understand the impact of regulatory changes on plan design and plan participants.