By Ronald Ulrich, Vice President, Product Consulting and Compliance at ADP
Catch-up contributions for older retirement plan participants have been a welcome vehicle for boosting retirement savings. Now, those contribution rates may be increasing.
Retirement security is on most people's minds these days — including Congress. Before the next Congress convenes on January 3, 2023, current members of both parties are working out details for a final version of retirement savings legislation to be approved into law. [An updated, related article is now available: SECURE 2.0 Act of 2022.]
One of the most important provisions under review is the possibility of raising catch-up contributions for certain employees. Currently, employees age 50 or older can put an extra $6,500 ($7,500 in 2023) into their 401(k) or an extra $1,000 into their IRA.
There are two different proposals under consideration between the House and Senate. Both versions would increase limits for a period of time as the employee gets closer to their retirement age, up to $10,000 dollars a year. Generally, the House version would be for employees between the ages of 62 and 64, and the Senate version for employees between 60-63. The final version will likely be some compromise between the two. Both proposals would require catch-up contributions to be made in Roth.
Making retirement readiness a reality
More than half of American workers say their retirement savings are not where they need to be — including 71% of baby boomers. These proposed increases should go a long way toward making older employees feel more confident about the road ahead.
Financial wellness education can be a powerful tool to help employees of all ages get their retirement savings on track. Programs like ADP Achieve use personalized communications and engaging, self-serve resources to educate employees on the benefits of plan participation.
For example, interactive workshops show employees how to set retirement savings goals, create effective savings strategies, choose the right asset allocation for their needs, and track their progress toward their savings goals.
With 82% of employees expecting to rely on their workplace savings plan for retirement income, it's critical to offer the best possible tools and plan resources to maximize participation rates. If your current plan doesn't offer robust employee communication tools and financial wellness resources, it may be time to make a change.
See how the right retirement plan provider can help you make the most of your investment as a plan sponsor in 2023.
ADP, Inc., and its affiliates do not offer investment, tax, or legal advice to individuals. Nothing contained in this article is intended to be, nor should be construed as, particularized advice or a recommendation or suggestion that you take or not take a particular action. Questions about how laws, regulations, guidance, your plan's provisions, or services available to participants may apply to you should be directed to your plan administrator or legal, tax or financial advisor. ADPRS-20221103-3798