SECURE Act 2.0 – An Update On Potential Provisions
Many Americans struggle to save for retirement.
Earlier this year the House of Representatives passed the Securing a Strong Retirement (SSR) Act, and two different U.S. Senate committees also advanced their own retirement savings-focused legislative proposals: the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg (RISE & SHINE) Act from the Health, Education, Labor, and Pensions Committee; and the Enhancing American Retirement Now (EARN) Act from the Finance Committee.
A combination of the provisions provided in these three acts may ultimately create the final version of what has been dubbed the SECURE Act 2.0. Some of the significant provisions under review and discussion include the following:
Mandatory Automatic Enrollment & Escalation
- Employers that establish defined contribution plans could be required to automatically enroll newly eligible employees at a pre-tax contribution amount of 3% of pay.
- Contributions would automatically increase annually by 1% up to at least 10% but not more than 15% of pay.
- Exceptions are made for small businesses with 10 or fewer employees, new businesses (those in business for less than 3 years), church plans, and governmental plans.
- Employees could opt out of automatic enrollment and/or escalation at any time.
Expansion Of Catch-Up Contributions & Roth Tax Treatment
- Increasing the annual catch-up amount to $10,000 for participants ages 62 through 64 beginning in 2023. This higher limit would also be indexed for inflation in future years.
- Currently, catch-up contributions to qualified retirement plans offered by employers can be made on a pre-tax or Roth basis (if the employer permits). SECURE Act 2.0 provides that starting in 2023, all catch-up contributions to employer-sponsored qualified retirement plans would be subject to Roth tax treatment.
Allowing Roth Matching Contributions
- Employers could have the option of permitting employees to elect some or all of their matching contributions to be treated as Roth contributions for 401(k) plans.
- Employer matching contributions designated as Roth contributions would not be excludable from employees’ gross income.
Delaying Mandatory Distributions
- The SECURE Act increased the age at which plan participants are required to begin taking mandatory distributions to 72.
- SECURE Act 2.0 could increase the required minimum distribution age to 73 in 2022, 74 in 2029, and 75 in 2032.
Expediting Part-Time Workers’ Participation
- The SECURE Act expanded eligibility for long-term, part-time workers to contribute to their employers’ 401(k) plan after 3 years of service, beginning January 1, 2021.
- SECURE Act 2.0 could expedite the addition of long-term, part-time workers as eligible participants by shortening the period for eligibility from 3 to 2 years, beginning January 1, 2021.
Authorize Student Loan Matching
- While the IRS has opened the door to allowing employers to make 401(k) matching contributions based on employees’ student loan payments, even if employees are not making retirement contributions themselves, compliance concerns have been a sticking point due to the absence of authorizing legislation.
- SECURE Act 2.0 could provide the needed statutory basis for employers to adopt this feature. The matching contributions for student loan payments would be required to vest under the same schedule as other matching contributions.
Bipartisan support for many of these provisions make it likely that a bill will end up on the president’s desk by year end. Consider Alliance your resource for information on any further developments and contact us with any questions that you may have.