The Latest on SECURE Act 2.0

7/22/2022 4:00:00 PM

Bell Bank News

In March 2022, the House passed its version of SECURE Act 2.0 almost unanimously with a vote of 414-5. The Senate has a similar proposed Bill, called the Retirement Security and Savings Act, currently pending in its Finance Committee.

Overall, both bills garner the same bilateral support as the original SECURE Act and look to accomplish similar goals of increasing retirement savings of American workers and making it easier for employers to set up and administer retirement plans. Generally, both bills have similar provisions with just a few differences that will need to be reconciled into a final bill.

Similar Provisions

  • Student Loans – One of the more interesting components present in both proposals is allowing employers to offer matching retirement contributions to employees who are paying off student loans. Employees could earn employer matching contributions by making eligible student loan payments in lieu of making their own contributions to the company’s retirement plan.
  • Lost and Found Database – Both bills propose establishing a searchable national lost-and-found registry at the Labor Department that Americans can use to find missing retirement dollars. One estimate is that there are 24 million marooned 401(k)s with $1.35 trillion in assets.
  • Long-Term, Part-Time Workers – Employees who work at least 500 hours in 2 consecutive years would have to be eligible for their company’s 401(k) plan.

Similar Provision, Different Application

  • Catch Up Contributions – The proposals both include increases to the limits on 401(k) catch-up contributions. There is, however, a minor difference in the application of these increases. The House proposal increases the catch-up limit to $10,000 from $6,500 for individuals between age 62 and 64. The Senate version increases the catch-up allowance to $10,000 for anyone older than 60. An interesting wrinkle in the House bill is that catch-up contributions would have to be done on a Roth basis.
  • Required Minimum Distributions (RMDs) – Both proposals include increases to the age at which retirees must begin RMDs, but with a slightly different application. The House bill would raise the RMD age to 73 in 2023, age 74 in 2030 and age 75 in 2033. The Senate proposal would raise the RMD age to 75 by 2032 as well as waive RMDs for individuals with less than $100,000 in aggregate retirement savings. Both bills reduce the penalty for failure to take an RMD to 25% from the current 50%.

Different Provisions

  • Mandated Auto Enrollment and Auto Escalation – The House bill would require many employers who set up new plans to automatically enroll employees at a rate of at least 3% and increase those contributions by 1% per year until they reach 10%. The Senate proposal does not include any auto-enroll or auto-escalation mandates.
  • Potential for Roth employer matching contributions – The House bill includes the ability for employees to elect matching contributions be done on a Roth basis (currently, they can only be done as pre-tax).

Next Steps

Plan sponsors and their service providers, who are still working through the implementation of the original SECURE Act, should prepare for further mandatory adjustments and potential enhancement opportunities.

Newport’s ERISA and legal teams are monitoring the progression closely and will continue to provide a thorough review of the legislation and the impacts and opportunities these changes could mean for retirement plans.