(CNN) – Congress is taking action to help avoid a potential retirement crisis.
A bill expected to reach President Joe Biden’s desk later this year could bring about new rules involving 401(k) programs and could impact your retirement savings.
“Part of this overhaul is to actually force people into saving in the 401(k) plan,” said Ted Jenkin, Financial expert & CEO at oXYGen Financial.
If passed and signed, the legislation, Secure Act 2.0, could require most employer-sponsored retirement plans to enroll eligible workers automatically at a 3% level.
That would increase by 1% until you’re contributing 10% of your paycheck annually, but workers would have the option to opt out or change their contribution level.
“Most people do not understand something called the ‘pay yourself first’ rule, and that means put money in your retirement plan before you start spending money on things like entertainment and travel,” Jenkin said.
The plan would also delay mandatory withdrawals and limit penalties for those who fail to withdraw on time.
The proposed act could also make it easier for those with student loans to save and for older workers to make catchup contributions.
It’s also a major change for part-time workers, who would be able to contribute to 401(k) plans for the first time.
With pension plans nearly extinct and the social security trust fund facing a 75-year deficit, experts said 401(k) plans are more critical than ever.
“The three-legged stool of retirement has basically turned into a pogo stick, and it’s going to be on your back and your responsibility to save money,” Jenkin said.
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