The Road to Pension Reform
May 6, 2021
House Ways and Means Committee Passes SECURE 2.0 By Unanimous Voice Vote
As we’ve previously reported, the prospects for additional pension reform building on the SECURE Act from 2019 remain strong. Recently, ICMA-RC sent letters voicing support for passage of the leading comprehensive retirement savings reform bills (often referred to as “SECURE 2.0”) authored by House Ways and Means Committee Chairman Richard Neal (D-MA) and Ranking Member Kevin Brady (R-TX) as well as Senate Finance Committee members Senator Ben Cardin (D-MD) and Rob Portman (R-OH). ICMA-RC specially noted our support for the enhancements to 457 plans as well as the expansion of collective investment trust to 403(b) plans.
On May 5, 2021, the House Committee on Ways and Means advanced the bipartisan “Securing a Strong Retirement Act of 2021” in a unanimous voice vote. It now moves to the full House for consideration which could occur later this summer.
While many of the provisions apply only to ERISA plans, governmental plans often follow ERISA provisions as a best practice. We’ve summarized those major provisions of the proposed pension bill impacting governmental and nonprofit employers and employees below:
- Eliminates the 457(b) “first day of the month” requirement
- Modifies Required Minimum Distribution (RMD) rules
- Increases starting age
- From 72 to 73 in 2022
- From 73 to 74 in 2029
- From 74 to 75 in 2032
- Reduces excise tax for RMD failures
- Removes RMD barriers for certain types of annuities
- Increases starting age
- Allows matching contributions in a DC plan for student loan repayments
- Allows 403(b) plans to invest in Collective Investment Trusts
- Allows for 403(b) multiple employer plans
- Modifies catch-up contributions rules
- Retirement plan catch-up contributions must be made on a Roth basis
- Increases catch-up contribution limit to $10,000 for individuals who have attained age 62 but have not turned 65
- Indexes IRA catch-up contribution amounts for inflation
- Expansion of age 50 “qualified public safety employees” exemption to private sector firefighters.
- Allows self-certification for hardship distributions from 401(k) and 403(b) plans
- A similar rule is intended to apply for purposes of unforeseeable emergency distributions from governmental 457(b) plans
- Conforms 403(b) hardship rules to 401(k) hardship rules
The Path Forward
Senators Cardin and Portman are expected to soon reintroduce their comprehensive bill, the Retirement Security and Savings Act, which will likely serve as the basis for Senate Finance Committee expected activity on retirement savings legislation in the fall.
Historically, comprehensive pension legislation is enacted as a part of broader legislative packages. As we saw with the passage of the SECURE Act in 2019, even with strong bipartisan support, it can be a long process before a bill is enacted into law.
ICMA-RC will continue to advocate for and closely monitor relevant pension reform legislation in support of enhancing retirement security for those who serve their communities. We will provide regular updates on developments as they occur. Please contact your ICMA-RC representative if you have questions.