Summary
SECURE 2.0 has many provisions aimed at improving the retirement plan system. One provision within this legislation that is focused on increasing the savings of lower income workers is changing the current Saver’s Credit to a match, where the federal government would make a matching contribution to a qualified retirement plan of lower income workers. The match would be directly added to the individual’s qualified retirement plan after the worker applied for the match. This provision is scheduled to go into effect in 2027.
Since implementing this match provision will be a substantial undertaking, this Issue Brief estimates the expected number of workers who would qualify for the match based on historical data and how many workers would be expected to receive these additional funds through the match. This will provide important information on the scale and impact on the system for both those administering the accounts and the workers receiving the additional dollars. Statistics of Income (SOI) tabulations (publicly available data from the Internal Revenue Service (IRS)) are used to determine these numbers, given their detail on tax specifics from the official tax forms used in them.
- Among all tax filers, 83.8 million taxpayers had incomes that would have made them eligible for the Saver’s Match from these tabulations. However, some of these individuals did not have wage income, a requirement for contributing to a qualified retirement plan. From tabulations of tax filers with W-2 (wage) income, 69.0 million had incomes eligible for the Saver’s Match.
- When examining the number who contributed to a qualified plan, it was found that 18.9 million workers contributed to an employment-based retirement plan and had incomes that would qualify for the Saver’s Match. In addition, 1.0 million unique individuals contributed to a traditional individual retirement account (IRA), and 2.0 million unique individuals contributed to a Roth IRA. This is a total of 21.9 million individuals who contributed to a qualified retirement plan and would have been eligible for the Saver’s Match based on the historical data examined.
While these numbers are solid ballpark figures, there are a few caveats that should be mentioned. These estimates could be a lower bound, because they only focus on those contributing to an employer plan who had their wage income reported on Form W-2, whereas some workers have their earnings reported on other forms, such as Form 1099. The new rules on covering part-time employees for employment-based plans would not have gone into effect during the historical timeframe of the data. State-run auto-IRA plans, which are almost exclusively Roth IRAs, would only have been in their infancy during the study timeframe, while the number of these accounts is now on track to reach one million (though not all, but many, would be within the income thresholds). Furthermore, those not filing taxes are not counted, nor is the possibility of more individuals contributing given the additional incentive from the match to contribute. In contrast, one factor that could reduce the number being eligible to qualify for the match is wage and income growth, as 2027 and the study year (2018) are several years apart, which included a high inflation period pushing some contributors above the income cutoffs. Nevertheless, these numbers are a good starting point for understanding the provision’s reach, and they show that the bulk of the individuals qualifying for the match will contribute to employment-based plans and a sizable number will contribute to Roth IRAs.