There are plenty of lawmakers who had a hand in crafting the 100+ provisions in the SECURE 2.0 Act of 2022. But perhaps no one has their fingerprints all over the SECURE 2.0 more than retiring Senator Rob Portman (R-OH) and his longtime partner in retirement reform legislation efforts, Senator Ben Cardin (D-MD).
Of the many provisions included in the package, 45 of those are based on the Senators’ bipartisan legislation S. 1770, the Retirement Security and Savings Act, which was introduced earlier this Congress and passed the Senate Finance Committee in June as part of the broader Enhancing American Retirement Now (EARN) Act. The bill has also had strong bicameral support, with the House of Representatives passing companion legislation in March in an overwhelming vote of 414 to 5.
“We want more Americans engaged in saving for their future and this legislation strengthens and expands the tools available to reach that goal.”
Sen. Ben Cardin (D-MD)
“These are critical new protections that will make it easier for Americans to save for their retirement and have the financial security they need. As the economy deals with the effects of the worst inflation in nearly 40 years, working families need all the help they can get when it comes to saving for the next chapter in their lives and we are now one step closer to making that possible,” said Senator Portman. “I would like to thank Senator Ben Cardin for his long-time partnership in this effort and look forward to this legislation being signed into law by the end of the year.”
Portman, who will retire from the Senate at the end of the year, and Cardin released a statement Tuesday applauding the inclusion of SECURE 2.0 in the omnibus appropriations bill expected to pass Congress by the end of the week.
“Americans need to save more so they can retire with the dignity and stability they deserve. It’s an ongoing struggle to reach lower and middle-income workers, which is why I have been proud to work with Senator Portman to find reasonable solutions that help increase savings, expand access to retirement plans for working families, and promote lifetime income solutions,” said Senator Cardin. “We want more Americans engaged in saving for their future and this legislation strengthens and expands the tools available to reach that goal.”
Here’s a closer look at eight key Cardin-Portman provisions included in the SECURE 2.0 Act of 2022 within the FY 2023 Omnibus bill.
Saver’s Match
Current law provides for a nonrefundable credit for certain individuals who make contributions to individual retirement accounts (IRAs), employer retirement plans (such as 401(k) plans), and ABLE accounts, tax-advantaged savings accounts for individuals with disabilities and their families.
The Saver’s Match provision changes the credit into a federal matching contribution that must be deposited into a taxpayer’s IRA or retirement plan. The match is 50% of IRA or retirement plan contributions up to $2,000 per individual. The match phases out between $41,000 and $71,000 in the case of taxpayers filing a joint return ($20,500 to $35,500 for single taxpayers and married filing separate; $30,750 to $53,250 for head of household filers).
The final package also directs the Treasury Department to increase public awareness of the Saver’s Match to increase use of the match by low- and moderate-income taxpayers.
Auto-Enrollment
The auto-enrollment provision states that the new 401(k) and 403b plans would be required to include (1) automatic enrollment at a minimum of 3% and a maximum of 10% and (2) automatic escalation at one percentage point per year up to at least 10%.
For safe harbor plans, the cap on permissible auto escalation would be 15%; for non-safe harbor plans, the cap on permissible auto escalation would be 10% prior to 2025; for 2025 and later years, the cap would be increased to 15%, like safe harbor plans.
The requirement to include auto enrollment and auto escalation would be effective for 2024, and plans in existence on the effective date would be grandfathered in. There would be exceptions for government plans, church plans, employers with 10 or fewer employees, and new businesses that have not been in existence for three years.
Start-Up Credit
The SECURE 2.0 package helps small businesses be able to offer retirement plans for their employees. The 3-year small business startup credit is currently 50% of administrative costs, up to an annual cap of $5,000. SECURE 2.0 increases the startup credit to 100% for employers with up to 50 employees.
Except in the case of defined benefit plans, an additional credit is provided for employers with 50 or fewer employees, which generally will be a percentage of the amount contributed by the employer on behalf of employees, up to a per-employee cap of $1,000.
403(b) Collective Investment Trusts
The final package expands investment options for public employees at a lower overall cost. Under current law, 403b plan investments are generally limited to annuity contracts and publicly traded mutual funds. This limitation cuts off 403(b) plan participants, who are typically employees of charities and public schools, colleges, and universities, from access to collective investment trusts (CITs). The final package would permit 403(b) custodial accounts to participate in group trusts, which are often used by 401(k) plans.
Student Loan Payment Match
The legislation includes a provision to assist employees who may not be able to save for retirement because they are overwhelmed with student debt, and thus are missing out on available matching contributions for retirement plans.
SECURE 2.0 allows such employees to receive those matching contributions for repaying their student loans. SECURE 2.0 permits (but does not require) an employer to make matching contributions under a 401(k) plan, 403(b) plan, or SIMPLE IRA. Governmental employers are also permitted to make matching contributions in a section 457(b) plan or another plan with respect to such repayments.
Military Spouse Retirement Plan Eligibility for Small Employers
Military spouses often do not remain employed long enough to become eligible for their employer’s retirement plan or to vest in employer contributions. SECURE 2.0 provides small employers a tax credit with respect to their defined contribution plans if they (1) make military spouses immediately eligible for plan participation within two months of hire, (2) upon plan eligibility, make the military spouse eligible for any matching or nonelective contribution that they would have been eligible for otherwise at 2 years of service, and (3) make the military spouse 100% immediately vested in all employer contributions.
The tax credit equals the sum of (1) $200 per military spouse, and (2) 100% of all employer contributions (up to $300) made on behalf of the military spouse, for a maximum tax credit of $500. This credit applies for 3 years with respect to each military spouse and does not apply to highly compensated employees.
Recoupment Requirements for Retirement Plans
Sometimes retirees mistakenly receive more money than they are owed under their retirement plans. These mistakes cause problems when they occur over time, and plan fiduciaries later seek to recover the overpayments from unsuspecting retirees. When an overpayment has lasted for years, plans often compel retirees to repay the amount of the overpayment, plus interest, which can be substantial. Even small overpayment amounts can create a hardship for a retiree living on a fixed income.
SECURE 2.0 allows retirement plan fiduciaries the latitude to decide not to recoup overpayments that were mistakenly made to retirees. If plan fiduciaries choose to recoup overpayments, limitations and protections apply to safeguard innocent retirees. This protects both the benefits of future retirees and the benefits of current retirees. Rollovers of the overpayments also remain valid.
Improving Coverage for Part-Time Workers
Current law requires employers to allow long-term, part-time workers to participate in the employers’ 401(k) plans. It provides that—except in the case of collectively bargained plans—employers maintaining a 401(k) plan must have a dual eligibility requirement under which an employee must complete either 1 year of service (with the 1,000-hour rule) or 3 consecutive years of service (where the employee completes at least 500 hours of service). SECURE 2.0 reduces the 3-year rule to 2 years, effective for plan years beginning after December 31, 2024.
SEE ALSO:
• It’s In! SECURE 2.0 Act of 2022 Included in Omnibus Appropriations Bill
• Cardin, Portman Honored for Strengthening American Retirement Security
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.
