Big changes to the way Americans save for retirement could take effect with new spending bill


New legislation working its way through Congress could improve retirement security for U.S. workers. The plan is part of a stop-gap spending bill and it includes a provision that would automatically enroll eligible employees into their company's retirement plan.

The hallmark of the legislation called the Secure Act 2.0, would see companies enrolling workers in a 401(k) retirement plan, deducting a least 3% — but no more than 10% — of an employee's pre-tax earnings, which would be deposited into the 401(k) account. Employees can always opt out of the program.

The legislation would also allow employers to factor in employees who make student loan payments when considering 401(k) contributions.

And it provides tax incentives for small businesses — the vast majority of firms in the U.S. — to begin offering 401(k) plans by increasing the tax write-offs available to those businesses for offering access to a retirement plan.

"It will deliver billions in additional retirement savings and help to ease the insecurity and anxiety that workers and retirees are feeling about having enough savings to provide them with the income they need to sustain them through retirement years," said Paul Richman, chief government and political affairs officer at the Insured Retirement Institute (IRI), a trade group.

While many companies currently offer 401(k) plans, enrollment is not typically automatic. Just 51% of businesses that responded to a 2020 Society for Human Resource Management survey said they automatically enrolled new or existing employees into a 401(k)-type plan.

Meanwhile, an AARP survey this year found that nearly half of all workers in the U.S. do not have access to a retirement plan at work in the first place. That equates to roughly 57 million private sector workers between age 18 and 64.

The issue is especially acute for part-time workers. The Secure Act 2.0 will lower the service requirement for these workers from three-consecutive years to two, meaning they'll be automatically enrolled in their employer's 401(k) retirement program once they have surpassed 500 hours of total service.

The legislation will also improve the lot of the 84% of American adults who say student loan payments have limited their ability to save for retirement, according to a 2019 study by the Massachusetts Institute of Technology's Age Lab and the financial services organization TIAA. Under the new legislation, employers can consider a worker's student loan payment to be the equivalent of a 401(k) contribution and match it accordingly.

For older workers aged 60 to 64 who were unable to contribute to 401(k)s earlier in their careers, the so-called catch-up contribution they can make to their current 401(k) plan would increase to $10,000.

Finally, the legislation offers a 100% tax credit to businesses with 50 employees or fewer for the cost of maintaining a 401(k) plan.

"It’s a bill that helps all income levels and all different types of workers and retirees," IRI's Richman said. 

The housing market slump deepened in November as sales of previously occupied U.S. homes slowed for the tenth consecutive month — the longest such stretch on records going back to 1999.

Existing home sales fell 7.7% last month from October to a seasonally adjusted annual rate of 4.09 million, the National Association of Realtors said Wednesday. That’s a slower sales pace than what economists had expected, according to FactSet.

Sales plunged 35.4% from November last year. Excluding the steep sales downturn that occurred in May 2020 at the start of the pandemic, sales are now at the slowest annual pace since November 2010, when the housing market was mired in the aftermath of the foreclosure crisis of the late 2000s.

Still, home prices continued to rise last month, though at a far smaller rate than just a few months ago. The national median home sales price rose 3.5% in November from a year earlier, to $370,700.

Nearly a quarter of homes that sold last month fetched more than their asking price, said Lawrence Yun, the NAR’s chief economist.

“We have this strange market where there are fewer buyers and fewer transactions, yet due to the limited supply some multiple offers are still happening and homes are still selling reasonably fast,” Yun said.

November’s housing snapshot is the latest evidence of a deepening rut from what was a blistering sales pace at the start of the year when mortgage rates hovered near historic lows.

The average rate on a 30-year mortgage was slightly above 3% in early January. Last week, it was at 6.31%, more than double the 3.12% average rate a year earlier, according to mortgage buyer Freddie Mac.

That increase can add hundreds of dollars to monthly mortgage payments and also can discourage homeowners who locked in at a far lower rate for the last couple of years from buying a new home.

Though they’ve declined in recent weeks, mortgage rates averaged 7.08% as recently as early November.

Mortgage rates are likely to remain a significant hurdle for some time as the Federal Reserve has consistently signaled its intent to keep raising short-term rates in a bid to squash the hottest inflation in decades.

The federal funds rate now stands at a range of 4.25% to 4.5%, the highest level in 15 years. Fed policymakers have forecast that the central bank’s rate will reach a range of 5% to 5.25% by the end of 2023.

While mortgage rates don’t necessarily mirror the Fed’s rate increases, they tend to track the yield on the 10-year Treasury note. The yield is influenced by a variety of factors, including expectations for future inflation and global demand for U.S. Treasurys.

Yun is forecasting that the average rate on a 30-year mortgage may fall to around 5.5% by next spring or summer. His rationale: Increased apartment building construction should lead to a pullback in rents, which will help lower a key inflation barometer. That could pave the way for the Fed to ease up on its campaign to hike rates, which “should moderate mortgage rates.”

“And if that’s the case, I think the housing market will see some steady rebound in terms of sales activity,” Yun said.

On average, homes sold in just 24 days of hitting the market last month, up from 21 days in October, the NAR said. That’s still a relatively quick turnaround, as before the pandemic homes typically sold more than 30 days after being listed for sale.

The inventory of homes on the market declined for the fourth consecutive month. Some 1.14 million homes were on the market by the end of November. That amounts to a 3.3 months supply at the current sales pace. In a more balanced market between buyers and sellers, there is a 5- to a 6-month supply.

The combination of higher mortgage rates and rising prices continues to keep many first-time buyers on the sidelines. They represented 28% of sales last month, unchanged from October, the NAR said. By historical standards, first-time buyers typically made up as much as 40% or more of transactions.

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