Retirement Savings Plans,For Plan Sponsors,Custom

SECURE 2.0 receives Bipartisan support in approval by the House

April 12, 2022

On March 29, the House overwhelmingly approved the bipartisan Securing a Strong Retirement Act by a vote of 414 to 5.

The bill, dubbed ”SECURE Act 2.0,” builds on the Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law in December 2019 to improve retirement savings opportunities for workers.

The Senate is considering its own version of SECURE Act 2.0, the Retirement Security and Savings Act, which shares many similar provisions as the House bill. If the Senate Finance and Health, Education, Labor and Pensions (HELP) Committees pass a SECURE 2.0 measure out of their respective Committees, as is expected, both chambers would likely move to reconcile their separate versions.

Key Provisions currently included in the Legislation:

  • Eliminate the 457(b) ”First day of the month” rule
    • 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 to be made at any time prior to the date that the compensation being deferred is available, thus conforming the 457(b) rule to the 401(k) and 403(b) rule.
  • Authorize Student Loan Payment Matching
    • The bill provides a statutory basis for employers to make matching contributions to retirement plans based on employees' student loan payments The matching contributions for student loan payments must vest under the same schedule as other matching contributions.
  • Increase Required Mandatory Distribution Age
    • The original SECURE Act increased the age at which participants in employer-sponsored defined contribution plans and traditional (non-Roth) individual retirement accounts must begin taking required minimum distributions (RMDs) to 72, up from 70-1/2. SECURE Act 2.0 further increases the age for starting RMDs to:
      • 73 starting in 2023 (for individuals who reach age 72 after Dec. 31, 2022, and age 73 before Jan. 1, 2030).
      • 74 starting in 2030 (for individuals who reach age 73 after Dec. 31, 2029, and age 74 before Jan. 1, 2033).
      • 75 starting in 2033 (for individuals who reach age 74 after Dec. 31, 2032).
  • Older workers could make larger Catch-Up Contributions
    • SECURE Act 2.0 increases the annual catch-up amount to $10,000 for participants ages 62 through 64, starting in 2024. This higher limit would be indexed for inflation.
    • SECURE Act 2.0 also requires that, starting in 2023, all catch-up contributions to employer-sponsored plans must be made to Roth accounts, allowing the government to tax these dollars sooner. Roth account contributions are made with post-tax dollars that can be withdrawn tax-free after retirement. Catch-up contributions currently can be made on either a pretax or Roth basis (if permitted by the plan sponsor).
    • Currently, the catch-up amount for individual retirement account (IRA) contributions is $1,000 (not indexed) for individuals who have reached age 50. SECURE Act 2.0 indexes this limit to inflation starting in 2023.
  • Expedite Part-Time Workers' Participation
    • The original SECURE Act expanded eligibility for long-term, part-time workers to contribute to their employers' 401(k) plan. SECURE Act 2.0 would shorten from three years to two years the measurement period for eligibility that starts in 2021 and expand this to apply to ERISA-covered 403(b) plans as well.
  • Mandatory Automatic Enrollment/Escalation
    • This would require employers that establish new 401(k) and 403(b) defined contribution plans to automatically enroll newly hired employees, when eligible, in the plan at a pretax contribution level of 3 percent of the employee's pay. This level would increase annually by 1 percentage point up to at least 10 percent but not more than 15 percent of the employee's pay. Employees could affirmatively elect a different contribution.
    • This provision would not apply for small businesses with 10 or fewer employees, those in business for less than three years, church plans and governmental plans.

Moving Forward

The Senate now needs to take up their version of this bipartisan legislation. The Finance Committee and the HELP Committee will lead the effort to develop a Senate version of SECURE 2.0. That process is already underway—on the same day that SECURE 2.0 passed in the House, the HELP Committee held a hearing on improving retirement and enhancing savings. A draft bill is expected to be released in the near future, and the HELP Committee then plans to hold a committee markup in May. The Finance Committee is expected to hold a markup of a retirement savings package in late May, although the timing is not certain.

Differences between the House and Senate bills would then need to be reconciled. It is not expected that the full Senate will hold a vote on the Senate version of the bill; rather, it is expected that a reconciled SECURE 2.0 bill would be attached to comprehensive legislation that might pass near the end of the year.

MissionSquare Retirement will continue to closely monitor this legislation and will keep you informed of developments. Please contact your MissionSquare Retirement representative if you have questions.

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