Everything Plan Sponsors Need to Know About SECURE Act 2.0

On March 29, 2022, the House of Representatives passed the Securing a Strong Retirement Act of 2022 (HR 2954), otherwise known as SECURE Act 2.0, by a vote of 414-5. Secure Act 2.0 builds on the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act to increase retirement savings and expand coverage to employer-sponsored retirement plans. The bill is currently in the Senate with action expected later this year. Once the Senate passes some version of the bill, as is expected, the differences between the House and Senate bill versions must be reconciled before being sent to President Biden to sign into law.

Below are some of the key provisions in the House-passed SECURE Act 2.0 that could potentially impact employers and plan sponsors of different plan types.

401(k), 403(b), 457(b) Plans

Matching Contributions on Student Loan Repayments

Plans would have the option to match an employee’s qualifying higher education student loan payments as if they were salary deferrals to the qualified plan. Employers choosing to offer the match must make it available to all employees eligible to receive matching contributions on salary deferrals. The match rate and vesting schedules for both salary deferrals and student loan payments must be the same. Employers may rely on an employee certification that the loan repayments were made.

Plans would be permitted to perform the ADP test separately for those participants receiving matching contributions on loan repayments. This is a significant change from prior proposals that will ease ADP testing under some plan sponsors’ student loan matching contribution programs.

Simpler Hardship Procedures in Defined Contribution Plans

Participants would be able to self-certify the hardship required to trigger eligibility for a hardship distribution from a 401(k), 403(b) or 457(b) plan.

Note: Because the guidelines are less rigorous, this simpler procedure should take much of the guesswork out of the picture for plan administrators. In the past, failure to substantiate the validity of a hardship distribution could have been considered a qualification failure and jeopardized the plan’s qualified status.

Matching Contributions on a Roth Basis

Employers would have the option to allow employees to elect to have some or all of their matching contributions treated as Roth contributions under 401(k), 403(b) or 457(b) plans.

Increase in the Age for Required Minimum Distributions (RMDs)

Participants’ required date to begin RMDs would be pushed back from an age 72 reference date to age 73 (starting January 1, 2023), age 74 (starting January 1, 2030) and age 75 (starting January 1, 2033).

401(k) and 403(b) Plans

Expanded Access for Part-Time Employees

For plan years beginning after 2020, plan sponsors of non-collectively bargained 401(k) and 403(b) plans would have to allow part-time employees to make elective deferrals after they reach age 21 if they have also completed at least 500 hours of service in two consecutive years.

Note: This would allow some part-time workers to participate in workplace retirement plans one year earlier than they are currently eligible. Previously, part-time workers would have needed to complete the hours-of-service requirement in three consecutive years.

Mandated Automatic Enrollment and Automatic Escalation for New Plans

New 401(k) and 403(b) plans beginning after December 31, 2023 would have to automatically enroll employees once they become eligible to participate in the plan. The automatic enrollment percentage must be between 3% and 10%, with a 1% automatic escalation each year (to a maximum of 10%). Participants may opt out.

The following employers would be excluded from the auto-enrollment requirement: Employers with current 401(k) plans, new employers in business for fewer than three years, church plans, governmental plans, and employers with ten or fewer employees.         

Note: This provision could prove challenging for multiemployer plans as many participating employers are unaware of whether a member is new to the plan or is coming from another job. It would be difficult to know whether to begin deferrals and whether the participant previously opted out.

403(b) Plans

Expanded MEP/PEP Participation

403(b) plans would be allowed to participate in a multiple employer plan (MEP) and a pooled employer plan (PEP). PEP fiduciaries may be responsible for collecting contributions.

Violations of one participating employer would not affect the treatment of the other participating employers in the plan.

Expanded Access to CITs

Beginning in 2023, plan sponsors of 403(b) plans would be allowed to offer collective investment trusts (CITs) as investment options.

Secure Act 2.0 encourages small businesses to sponsor plans and make the plans easier to maintain. It also creates a new method for finding missing participants.

Small Business Tax Incentives

A new tax credit would be created, and the existing credit would be expanded to encourage small businesses, with up to 50 employees, to establish a retirement plan. The three-year, new retirement plan start-up credit would increase from 50% (of costs) to 100%, with a $5,000 annual cap.

Reporting and Disclosure Simplification

Changes to reporting and disclosure rules are meant to simplify the process.

  • Beginning in 2024, defined contribution (DC) plans would provide at least one paper benefit statement annually (one every three years for defined benefit (DB) plans) unless the participants opt out and affirmatively request electronic delivery.
  • Departments of Labor (DOL) and Treasury along with the Pension Benefit Guaranty Corporation (PBGC) would review how to streamline reporting and disclosure requirements for employer-sponsored plans.
  • DOL would issue new guidance allowing DC plan administrators to benchmark a designated investment alternative holding a mix of asset classes (e.g., target-date fund) against a blend of securities market indices reasonably representative of the fund’s asset class holdings.
  • Summary plan description (SPD) and other required disclosures that must be regularly provided to all eligible employees in DC plans would not have to be provided after an employee waives enrollment. Annual reminders of eligibility would still be required.  

Establishment of “Retirement Savings Lost and Found”

No later than two years after Secure Act 2.0’s enactment, an online searchable database, “Retirement Savings Lost and Found” (RLSF), would be created within DOL. Plan administrators would have to provide DOL with information about current and former participants to enable DOL to construct and operate the database.Individuals could search the database for plan contact information.

Stay tuned to the International Foundation and SECURE Act webpage for updates and forthcoming guidance.

Resources

SECURE 2.0 could mean significant changes to retirement savings plans, Buck, April 28, 2022

House Passes SECURE Act 2.0, Convergent Retirement Plan Solutions, LLC, March 30, 2022

Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.

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