New research from the Employee Benefit Research Institute (EBRI) shows the positive impact of specific provisions from the Setting Every Community Up for Retirement Enhancement (SECURE) Act and the SECURE 2.0 Act.
Perhaps not surprisingly, the changes to automatic enrollment and the Saver’s Match appear to have the biggest impact, according to EBRI’s newly released issue brief, “Changes in Retirement Security From SECURE 1.0 and 2.0: Evidence From EBRI’s Retirement Security Projection Model.”
For 401(k) plans and 403(b) plans starting after Dec. 31, 2024, automatic enrollment will be required (with some exceptions). In addition, the Saver’s Match will replace the current Saver’s Credit by matching low-income workers’ contributions to employer plans and IRAs. The match is 50% of the contributions up to $2,000 per individual, with the match being directly deposited into the individual’s IRA or employment-based retirement plan.
With the addition of these provisions, EBRI found that the Retirement Readiness Rating (RRR) increases by 1.6 percentage points to 61.5%. Furthermore, the aggregate Retirement Savings Shortfall (RSS-) would be reduced by $213 billion and the aggregate Retirement Savings Surpluses (RSS+) would be increased by $295 billion.
As a national model, the EBRI Retirement Security Projection Model (RSPM) was developed in 2003 and has been updated repeatedly for changes in legislation and for a better understanding of the behavior within the retirement system.
Using the latest data for the cohort of individuals being simulated (those ages 35–64), EBRI established new baseline metrics and compared those with the latest metrics from 2019. The RRR, which is the share of individuals projected to not run short of money in retirement, increased from 59.4% in 2019 to 59.9%.
In addition, the aggregate savings shortfalls (RSS-), the average amount of money by which individuals run short of covering the projected expenses in retirement, decreased from $3.83 trillion in 2019 to $3.48 trillion in 2022 dollars.
Additional Changes
Emergency Withdrawals: The SECURE 2.0 Act provides an exception to the 10% tax penalty for early distributions for emergency expenses, which are “unforeseeable or immediate financial needs relating to personal or family emergencies.” One distribution of up to $1,000 is permissible per year.
According to EBRI’s projections, this provision has a minimal impact on retirement security, as with it, the RRR slightly declines from 59.9% to 59.8%.
Catch-up Contribution Changes: The catch-up contribution limit in employer plans will be raised for individuals who will attain ages 60–63 in 2025, and catch-up contributions of those making more than $145,000 must be made on a Roth basis starting in 2026. Furthermore, the catch-up contribution amount on individual retirement accounts (IRAs) will be indexed to inflation like regular contributions.
Somewhat surprisingly, none of these provisions was shown to have an impact on the metrics used in the RSPM.
All Modeled Provisions: That said, EBRI’s modeling all of the provisions described above together shows an increase in the RRR of 1.6 percentage points, from 59.9% to 61.5%. What’s more, the reduction in the savings shortfalls was $210 billion, and the increase in the savings surpluses was $280 billion.
EBRI reminds readers that the youngest cohorts will have the most improvement due to the compounding of any additional contributions and more time to be exposed to the effects of the SECURE provisions. To that end, the improvement in the percentage of individuals not running short of money in retirement was 4.7 percentage points among those ages 35–39 and 2.7 percentage points among those ages 40–44.
“The impact of the SECURE Acts is likely to be significant. However, the impact will not be immediate, as the provisions are being implemented over a number of years and the effects will take time to accumulate once implemented,” Craig Copeland, EBRI’s Director of Wealth Benefits Research, told NAPA. “As such, younger and lower income workers will see its impact build over time, leading to improved retirement security for future generations.”
