Retirement Savings Plans,For Individuals,For Plan Sponsors,Custom

SECURE 2.0 Introduced in House Ways and Means Committee

October 29, 2020

On October 27, 2020, the House Ways and Means Committee Chair Richard Neal (D, MA) and Ranking Member Kevin Brady (R, TX) introduced the “Secure a Strong Retirement Act of 2020,” which has also been called “SECURE 2.0.”  This major pension reform bill incorporates a number of pension reform ideas discussed over the past several years.  The bill may be found here.

Typically, significant pension reform legislature is introduced in order to socialize lawmakers to the proposal.  It is highly unlikely that SECURE 2.0 will be passed into law prior to the end of the 116th US Congress (ending January 3, 2021).  The expectation is that the bill will be reintroduced in 2021 although national priorities and the legislative process may impact timing.

We’ve summarized those major provisions of SECURE 2.0 impacting governmental and nonprofit employers and employees below:

  • Changes in mandatory distribution rules
    • The bill would increase the Required Minimum Distribution (RMD) age from 72 to 75.
    • The 50% excise tax for failure to take minimum distributions would be reduced from 50% to 25% and, under certain circumstances in IRAs, to 10%.
    • The bill would provide that defined contribution plan participants and IRA owners are not required to comply with the lifetime RMD rules if they have a balance in their defined contribution plans and IRAs of not more than $100,000 (indexed) on December 31 of the year before they attain 75.  
  • Allow 403(b) plans to invest in collective investment trusts. 403(b) plans currently may not invest in collective investment trusts, which are often used by 401(a) plans due to their lower fees. Under the bill, 403(b) custodial accounts would be permitted to invest in collective investment trusts.
  • Eliminate the 457(b) “first day of the month” requirement. Participants in a 457(b) plan must request changes in their deferral rate prior to the beginning of the month in which the deferral will be made.  The bill allows such elections in a governmental 457(b) plan to be made at any time prior to the date that the compensation being deferred would otherwise be paid in cash.
  • Annual paper benefit statement.  The bill amends ERISA to provide that with respect to defined contribution plans relying on the 2020 e-delivery regulations, unless a participant elects otherwise, the plan is required to provide a paper benefit statement at least once annually.  The other three quarterly statements required under ERISA are not subject to this rule.
  • Treatment of student loan payments as elective deferrals for purposes of matching contributions. Under the bill, for purposes of the nondiscrimination testing and safe harbor rules, an employer would be permitted to make matching contributions under a 401(k) plan, 403(b) plan, or SIMPLE IRA with respect to “qualified student loan payments.”

Governmental employers would also be permitted to make matching contributions in a section 457(b) plan or another plan with respect to such repayments.

  • Higher catch-up contribution for individuals who have attained age 60. Under current law, employees who have attained age 50 are permitted to make catch-up contributions under a retirement plan in excess of the otherwise applicable limits. The limit on retirement plan catch-up contributions for 2020 is $6,500. The bill would increase these limits to $10,000 for individuals who have attained age 60.
  • Saver’s Credit. Under current law, the Saver’s Credit is a specified percentage of retirement savings contributions, up to $2,000 (not indexed), made by certain individuals. The bill:
    • Increases the $2,000 on contributions to $3,000, and indexes that amount.
    • Makes the credit a straight 50% until it starts to phase out.
    • Begins the phase-out of the credit at $40,000 (indexed) of AGI for single taxpayers, and $80,000 (indexed) for joint returns. The credit is phased out over $20,000 of AGI, so that joint returns with $100,000 or more of AGI receive no credit.
  • Exclusion of certain disability-related first responder retirement payments. The bill would allow first responders to exclude service-connected disability pension payments from gross income after reaching retirement age.
  • Parity for firefighters and emergency medical personnel. Some state political subdivisions contract with tax-exempt public safety agencies to provide firefighting and out-of-hospital emergency medical services.  The bill clarifies that plans established by a government but maintained by such agencies are governmental plans, so that the agencies’ employees can be treated in the same manner as other emergency personnel employed directly by the government.
  • 403(b) MEPs. The bill would clarify that 403(b) plans may be maintained on a multiple employer plan (“MEP”) basis.
  • Small immediate financial incentives for contributing to a plan. Under current law, incentives for making 401(k) contributions, like $25 gift cards, are prohibited by the rule generally prohibiting any incentives other than matching contributions. Under the bill, de minimis financial incentives would be permitted under 401(k) and 403(b) plans.

ICMA-RC will continue to closely monitor SECURE 2.0 and will keep you informed of developments. Please contact your ICMA-RC Representative if you have questions.

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