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SECURE 2.0 Efforts Advance Out of Senate Committees: Setting the Stage for End of Year Passage

June 24, 2022

On June 22, the Senate Finance Committee unanimously voted on a bipartisan bill, The Enhancing American Retirement Now Act, dubbed the EARN Act, that is the last Senate component for the broader SECURE Act 2.0 retirement security package. The Senate Health Education Labor and Pensions (HELP) Committee unanimously advanced the first portion, the RISE & SHINE Act, The Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg, on June 14.

The House of Representatives’ Retirement Security and Savings Act or SECURE Act 2.0 legislation, which passed in March, and the two Senate packages are roughly the same cost, and each contain about 70 provisions, of which around 40 are the same or similar. House and Senate committees with jurisdiction are already working together to integrate the rest to create a final SECURE Act 2.0 package.

The following highlights key provisions in: (1) the Senate bills that are similar to the House and will very likely be included in a final 2.0 package; (2) Senate bill key provisions that will need to be reconciled; and (3) House key provisions that will need to be reconciled.

Key provisions that are similar in the House and Senate bills:

  • 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 bills allow 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 bills provide 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.
  • 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. The bills would shorten from three years to two years the consecutive years of service for eligibility that starts in 2021 and expand this to apply to ERISA-covered 403(b) plans as well.
  • 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 70½.
    • The Senate EARN Act further increases the age for starting RMDs to age 75 beginning Jan.1, 2032. The House version offered a stepped-up age increase from 73* to 75 over the coming ten years. It is widely expected the Senate text will be part of the final 2.0 package.
  • Older workers could make larger Catch-Up Contributions
    • The Senate increases the annual catch-up amount to $10,000 for participants ages 60 through 63, starting Jan. 1, 2024. This higher limit would be indexed for inflation. (The House specifies the special catch-up for ages 62 through 64.)
    • The Senate and House bills also require that, all age-based 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).
      • The EARN Act delays implementation of the Roth catch-up mandate until January 1, 2024 (House is 1/1/2023.)
      • In addition, a change was made in the Senate Finance Committee EARN Act process to insert an income threshold above which any age-based catch-up contributions must be made on a Roth basis. More information is expected on this in the coming weeks as this was a late amendment to the package.

Senate provisions not included in the House-passed legislation:

  • Addressing the Need for Emergency Savings
    • Both of the Senate Committee bills include optional emergency savings provisions. MissionSquare understands that the intent is to include both proposals in the final legislation, so as to give employers a choice of different approaches.
    • The RISE & SHINE Act would permit employers to offer workplace emergency savings accounts linked to defined contribution plans. Employers may automatically opt employees into these accounts at no more than 3% of their salary, and the accounts are capped at $2,500 (or lower as set by the employer). Contributions are made post-tax and are treated as elective deferrals for purposes of retirement matching contributions. Once the cap is reached, the excess emergency savings contributions return to retirement plan savings.
    • The EARN Act provides an exception for certain distributions used for emergency expenses, which are unforeseeable or immediate financial needs relating to personal or family emergency expenses. Only one distribution would be permitted per year of up to $1,000, and a taxpayer would have the option to repay the distribution within three years.
  • Automatic Reenrollment
    • Many employers automatically enroll their employees in retirement savings plans through certain safe harbors when they start the job, but many employees initially decide to opt out. The RISE & SHINE Act would allow employers every three years to automatically re-enroll workers who previously opted out of a retirement plan.
  • Public Safety Officers:
    • Present law provides an exclusion from gross income ($3,000) for a distribution from a governmental retirement plan to a public safety officer to pay for his or her health insurance premiums. The exclusion requires that the plan directly pay the insurance company. This provision would repeal the direct payment requirement and would be effective after date of enactment.
    • The proposal also modifies the exception from the 10% early distribution tax for distributions made to a qualified public safety employee following separation from service after age 50 to also apply if the employee separates after at least 25 years of service under the plan. Thus, a distribution from a governmental plan that is made to a qualified public safety employee after separation from service after attainment of age 50 or 25 years of service under the plan (whichever is earlier) is exempt from the early withdrawal tax.
    • The EARN Act modifies the definition of qualified public safety employee to also include any employee of a State or political subdivision who provides services as a corrections officer or as a forensic security employee providing for the care, custody, and control of forensic patients. Thus, a distribution from a governmental plan that is made to such a corrections officer or forensic security employee after separation from service after attainment of age 50 (or 25 years of service under the aforementioned proposal) is exempt from the 10% early withdrawal tax.
  • Automatic disaster relief
    • In recent years, Congress has on a case-by-case basis, made available various forms of distribution and loan relief to retirement plan participants and IRA owners who have been affected by federally declared disasters. The bill would automatically make disaster-related distribution and loan relief available upon the issuance of a federal disaster declaration, that is similar to the relief provided in the CARES Act.

House-passed provision not included in the Senate bills:

  • 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.

Next Steps

The Senate bills will need to be reconciled with the House-passed SECURE Act 2.0 legislation before any 2.0 package sees final passage and a completed bill could be sent to President Joe Biden to sign.

It is not expected that either Chamber will hold standalone votes on SECURE 2.0 rather, it is widely anticipated 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.

* Age 70½ (if you were born before July 1, 1949), age 72 (if you were born after June 30, 1949, and before January 1, 1951), or age 73 (if you were born after December 31, 1950).

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