Retirement industry experts widely expect Congress to pass significant retirement reform legislation—informally referred to as “SECURE 2.0” in deference to its building upon reforms in the 2019 SECURE Act—during the lame duck session following next Tuesday’s midterm elections.
There is a high level of optimism throughout the retirement industry that the legislation will pass before the end of the year due to strong bipartisan support—and the fact that several strong proponents of the legislation will not be serving next year, perhaps most notably Senator Rob Portman (R-OH), who is retiring at the end of this session of Congress.
Together, the three bills include 146 wide-ranging provisions. Of those, 39 of them are essentially the same in all three bills.
The SECURE 2.0 package is essentially made up of three separate bills working their way through the House and Senate this year, which include 146 different provisions that seek to expand opportunities to save for retirement.
Those three bills are:
• H.R. 2954, the Securing a Strong Retirement Act of 2022, which includes 50 provisions and passed the House on March 29 by an overwhelming vote of 414-5.
• S. 4953, the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act—commonly referred to as the RISE & SHINE Act. It includes 23 provisions and passed unanimously out of the Senate HELP Committee on June 21.
• S. 4808, the Enhancing American Retirement Now Act, commonly referred to as the EARN Act. It has 73 provisions and passed unanimously out of the Senate Finance Committee on June 22.
The three bills are currently being reconciled by both chambers, and there appear to be no major roadblocks to crafting the final legislation. Once it is finished, SECURE 2.0 is expected to be attached to a piece of year-end, must-pass legislation, such as a spending bill.
Together, the three bills include 146 wide-ranging provisions. Of those, 39 of them are essentially the same in all three bills. There are six provisions in all three bills that seek the same objective but take different approaches. Finally, there are 52 provisions in the bills that are stand-alone—32 in the EARN Act, 14 in the RISE & SHINE Act, and six in the House bill.
Provisions in all three bills
Some of the provisions that are in all three bills include:
• Further expand eligibility for long-term, part-time employees to make 401k plan contributions by lowering the service requirement from 3 years to 2 years.
• Permit employers to make matching contributions to a 401k, 403b or SIMPLE IRA based on qualified student loan payments. Employees who are making payments on their student loans (but not contributing to their retirement plans) would be able to get employer matching contributions, which would match the amount of the student loan payment up to a certain percentage of the employee’s salary.
• Enable eligible small employers who want to offer 403b plans to participate in MEPs and PEPs.
• Enhance the startup tax credit for small businesses launching a retirement plan.
• Create a new tax credit for small employers who employ military spouses with respect to their defined contribution plans.
• Index the currently unindexed amount the additional $1,000 an IRA owner can contribute annually to the IRA beginning at age 50.
• Permit penalty-free withdrawals from retirement plans for individuals in case of domestic abuse.
• Provide employer retirement plans with an extended period of time by which plan amendments must be adopted to reflect the changes in law made by the legislation.
• Enhance 403b plans by permitting 403b custodial accounts to invest amounts in collective investment trusts.
• Modify Treasury Department regulations that now prohibit exchange-traded funds from being included in the segregated account of a variable insurance contract to allow ETFs to be included.
• Remove some limitations of current Treasury Department Qualifying Longevity Annuity Contracts (QLACs).
• Remove RMD barriers for life annuities.
• Permit 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.
• Provide all catch-up contributions to qualified retirement plans are subject to Roth tax treatment. [Note: This change is being made beginning in 2023 to prevent tax revenue from being lost. If catch-up contributions were put into a traditional IRA, it would wind up costing the government revenue because of the tax deductions.]
• Permit an employee to elect the option to treat employer matching contributions and other employer contributions to a 401k, 403b and 457b as after-tax Roth contributions.
Different approaches to same objective
Among the provisions that take different approaches to the same objective that need to be resolved are:
• Higher catch-up contribution limits: Allow people from age 62 to 64 to contribute an additional $10,000 to their 401k or 403b plans, or an additional $5,000 to SIMPLE IRA plans instead of the current limits of $6,500 and $3,000.
• Increasing the RMD age. The House bill increases RMD age from 72 to 75 by making it age 73 in 2023, age 74 in 2030 and 75 in 2033; while the EARN Act would increase the age from 72 to 75 effective after 2031.
• Modification of credit for small employer pension plan startup costs.
• Creating a retirement savings “lost & found”—a national database for Americans to find lost retirement accounts.
• Auto enrollment requirements: Require newly created 401k and 403b 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 401k plans, companies that are less than three 3 years old or that employ 10 or fewer people, and church and governmental plans would be exempt.
• Saver’s credit modifications
To explore the 52 standalone provisions cumulatively included in the three bills, check out section-by-section summaries at the following links:
• H.R. 2954: Securing a Strong Retirement Act of 2022
• S. 4808: EARN Act
• S. 4353: RISE & SHINE Act
SEE ALSO:
• Portman, Cardin: Get Retirement Reform Done Now
• RMD Age-Raising EARN Act Ready for Inclusion in SECURE 2.0
• Senate HELP Committee Advances RISE & SHINE Act
• Auto-Portability Receives Bipartisan Backing with House Bill
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
