The end-of-year push to pass the bill package known as SECURE 2.0 is underway. SECURE 2.0 is comprised of three separate bills, one in the House of Representatives (House) and two in the Senate, aimed at increasing retirement savings and expanding coverage to employer-sponsored retirement plans.
The House passed the Securing a Strong Retirement Act of 2022 (HR 2954), legislation comprised of 50 provisions, by a vote of 414-5 on March 29, 2022, legislation comprised of 50 provisions. For further discussion of the House bill, see our previous blog, Everything Plan Sponsors Need to Know About SECURE Act 2.0.
The Senate bills await further action after advancing out of the Senate Finance and Health, Education, Labor and Pensions (HELP) committee by unanimous votes in June 2022. The Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act (RISE & SHINE Act) (S 4353) includes 23 provisions. The Enhancing American Retirement Now Act (EARN Act) (S 4808) has 73 provisions.
After passage in the Senate, the three bills must be reconciled in a final piece of legislation and voted on in both chambers. The reconciled bill would then go to the President for his signature to become law.
The Bill Structure
The three bills are made up of 146 provisions in total. Thirty-nine provisions are nearly identical in multiple bills and are most likely to survive for inclusion in the final legislative package. Six of the provisions in multiple bills have the same retirement outcome but take different approaches to get there. Of the remaining provisions in the three bills, 52 are independent from one another.
Major Provisions Present in Multiple Bills
Of the 39 nearly identical provisions present in multiple bills, the following are examples which may be of interest to employers:
- Part-time employee eligibility. Reduces the number of years of service from three to two, after which part-time employees with at least 500 hours of service in two consecutive years must be made eligible for an employer-sponsored retirement plan.
- Student loan match. Allows employers to match employee student loan payments with retirement plan contributions. Permits employees who are making payments on their student loans (but not contributing a retirement plan) to get employer matching contributions to match the amount of the student loan payment up to a certain percentage of the employee’s salary.
- Employer contributions as after-tax income. Gives employees the option to designate employer contributions as after-tax income to be taxed in the current tax year instead of the year it is withdrawn.
- 403(b) plan participation in MEPs and PEPs. Enables eligible small employers who want to offer 403(b) plans (which are generally sponsored by charities, educational institutions and non-profits) to participate in multiple employer plans (MEPs) and pooled employer plans (PEPs).
- Tax credit for employing military spouses. Creates a new tax credit for small employers who allow military spouses to participate in the employer’s defined contribution plan.
- Waiver of early distribution penalty for domestic abuse victims. Waives the 10% tax on early distributions for victims of domestic abuse who take early distributions from retirement plans.
- Provisions relating to plan amendments. Provides employer-sponsored retirement plans with an extended timeframe by which plan amendments must be adopted to reflect the changes in the law made by legislation.
- Enhancement of 403(b) plans. Enhances 403(b) plans by allowing 403(b) custodial accounts to invest amounts in group/collective investment trusts.
- Qualifying longevity annuity contracts. Removes various limitations of current Treasury Department Qualifying Longevity Annuity Contracts (QLACs).
- RMD barriers for life annuities. Eliminates barriers to the availability of life annuities in qualified retirement plans that arise under current law due to an actuarial test in the RMD regulations.
- SIMPLE and SEP Roth IRAs. Permits employees participating in a SIMPLE IRA or a Simplified Employee Pension (SEP) to elect to treat elective deferrals and employer contributions as after-tax Roth contributions.
- Elective deferrals generally limited to regular contribution limit. Provides that all catch-up contributions to qualified retirement plans are subject to Roth tax treatment.
Provisions with Different Approaches to the Same Objective
There are six provisions that provide different paths to the same retirement outcome, which must be resolved before final legislation can move forward. Five of the provisions may be of interest to employers:
- Higher catch-up contribution limits. Raises the limit for catch-up contributions to 401(k) or similar plans to $10,000 from the current $6,500 ($7,500 in 2023).
- The House bill applies to people aged 62 to 64, effective tax year 2024.
- The Senate version (EARN Act) raises the limit for people aged 60 to 63, effective tax year 2025.
- Increasing the RMD age. Raises the age at which people must take RMDs from their retirement accounts from 72 to 75.
- The House version takes a gradual approach, raising the age to 73 on January 1, 2023; to 74 on January 1, 2030; and to 75 on January 1, 2033.
- The Senate (EARN Act) version raises the age in a single move, going to 75 on January 1, 2032.
- Adjustment of tax credit for small employer pension plan startup costs. The current three-year small business startup credit is 50% of administrative costs, up to an annual cap of $5,000.
- The House bill enhances the startup tax credit by increasing the credit from 50% to 100% for employers with up to 50 employees.
- The Senate bill (EARN Act) modifies the existing credit by increasing the 50% rate to 75% for employers with 25 or fewer employees.
- Creating a retirement savings lost and found. Many plan participants approaching retirement cannot find and get their earned benefits because their former employer is no longer there. There are also employers ready to pay benefits to retirees they cannot find due to changed names or addresses.
- The House bill would create a national, online searchable lost and found database for Americans’ retirement plans at the U.S. Department of Labor. The database would enable retirement savers, who might have lost track of their retirement plan, to search for the contact information of their plan administrator.
- The Senate bill (EARN Act) would require the U.S. Department of the Treasury (Treasury) to maintain a database providing contact information for employer-sponsored retirement plans to assist participants and beneficiaries in recovering lost plan benefits. Under the Senate version, Treasury must also hold a participant’s account balance in an employer-sponsored retirement plan if the balance is under $1,000, the employer sought to distribute the account balance because it was immediately distributable (e.g., following a termination of employment), and the participant did not affirmatively make an alternative election. An account balance held by Treasury would be treated as being held in an IRA, would be credited with interest, and Treasury would periodically notify the owner of his or her distribution rights.
- Auto enrollment requirements. Automatic enrollment in 401(k) plans is aimed at increasing plan participation to help workers save for retirement unless they take the initiative to opt out.
- The House bill requires newly created 401(k) and 403(b) plans to automatically enroll all new, eligible employees at a 3% contribution rate that would be increased annually until it reaches 10%. Employers with current 401(k) or 403(b) plans, small businesses with ten or fewer employees, businesses that are less than three years old, and church and governmental plans would be exempt.
- Under the Senate bill (RISE & SHINE Act), employers who use these optional safe harbors must allow employees who opt out of a retirement plan to reconsider their choice at least every three years.
Disagreements and Standalone Provisions Between Bills
Disagreements between the three bills include:
- Timetables for catch-up contribution changes and required minimum distribution changes.
- Whether auto-enrollment in employer-sponsored retirement plans should be required or incentivized with tax credits.
There are also provisions that are unique to each individual bill. For example, only the EARN Act includes the following provisions:
- Starter 401(k) plans for employers with no retirement plan. Permits an employer that does not sponsor a retirement plan to offer a starter 401(k) plan (or safe harbor 403(b) plan). A starter 401(k) plan (or safe harbor 403(b) plan) generally requires that all employees be automatically enrolled in the plan at a 3 to 15% of compensation deferral rate.
- Use of retirement funds in connection with qualified federally declared disasters. Creates permanent rules relating to the use of retirement funds in the case of disaster. The permanent rules would allow up to $22,000 to be distributed from employer-sponsored retirement plans without penalty.
For more standalone provisions, see the bill summaries for Securing a Strong Retirement Act of 2022, EARN Act, and RISE & SHINE Act.
The two Senate bills await passage, after which they must be reconciled, with the House bill, into a single, final bill. The final bill will likely be attached to must-pass legislation, such as a funding bill to replace the temporary spending bill expiring on December 16. Since Republicans regained the House, the party may try to avoid passing any major policy changes before it assumes leadership in early January. However, some of the legislation’s sponsors are retiring, which could act as an incentive for lawmakers to pass the bill this year. If the bill is not attached to must-pass legislation, lawmakers could try to pass the bill again in 2023, which could be a slow process as the bill must be re-introduced and begin the legislative process all over again.
Stay tuned to the International Foundation for the latest SECURE 2.0 news. For more resources, see our SECURE Act 2.0 webpage.
Amanda Wilke, CEBS
Information/Research Specialist at the International Foundation
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