On March 29, 2022, the House of Representatives, by a nearly unanimous (414-5) vote, approved the Securing a Strong Retirement Act of 2022 (SECURE 2.0). The bill represents a synthesis of the Ways and Means Committee’s Securing a Strong Retirement Act of 2021 and the Education and Labor Committee’s RISE Act.
The Senate is currently working on its own version of comprehensive bipartisan retirement policy reform. Some believe there is a possibility that some combination of SECURE 2.0 and whatever the Senate produces could pass in a post-election lame duck session.
In what follows, we review the bill, focusing on some key provisions:
401(k) plans adopted after the date of enactment must include automatic contribution/escalation and default investment to QDIA
New (post-date-of-enactment) 401(k) plans would have to default participants into the plan at a contribution rate of at least 3% of pay, escalating each year by 1% up to at least 10%. Contributions for which the participant has not made an investment election must be defaulted into a qualified default investment alternative (QDIA) (generally, a target date or balanced fund or a managed account).
The new rule would not apply to plans adopted before the date of enactment, for the first 3 years of a new employer’s existence, or to employers of 10 or fewer employees.
Easing of rules for 401(k) matching contributions for student loans
Sponsor contributions to a 401(k) plan that “match” student loan repayments would generally be treated as “regular” 401(k) employer matching contributions. This would solve a number of the technical issues.
For purposes of the matching contribution rules under 401(k) (and 401(m)) testing safe harbors, student loan repayments would be treated as elective deferrals. For instance: a plan qualifies for the “general” safe harbor if the employer matches 100% of elective contributions up to 3% of pay and 50% of elective contributions in excess of 3% up to 5% of pay. The employer “match” for student loan repayments would count as a match for purposes of this rule.
Student loan repayments would not be treated as elective deferrals for any other purpose. In some circumstances, this would make the ADP test more difficult to satisfy. However, under SECURE 2.0, plans would be permitted to perform the ADP test separately for those participants receiving matching contributions on loan repayments. This is a significant change from prior proposals that will ease ADP testing under some sponsors’ student loan matching contribution programs.
(We note that a number of potential technical issues would remain with respect to student loan matching contribution programs for sponsors with retirement benefits in addition to 401(k)/401(m).)
Retirement Savings Lost and Found
SECURE 2.0 instructs the Secretaries of Labor, the Treasury, and Commerce to, within 2 years of enactment, establish an online searchable database, managed by DOL, known as the “Retirement Savings Lost and Found” (RLSF).
Individuals would be allowed to search the database for plan contact information. DOL could use the database to assist participant searches and is to update the database’s plan contact information for, e.g., plan/corporate mergers.
The bill would also significantly increase required reporting with respect to, e.g., mandatory transfers, supporting the RSLF database.
Increase required beginning date to age 75
SECURE 2.0 would increase the required beginning date for required minimum distributions (RMDs) to age 73-75 depending on age, as follows.
|Age/Year||Required beginning age|
|Age 72 after December 31, 2022, and age 73 before January 1, 2030||73|
|Age 73 after December 31, 2029, and age 74 before January 1, 2033||74|
|Age 74 after December 31, 2032||75|
Changes to catch-up contribution rules: limited to Roth only, COLA increase, increase limit to $10,000 for ages 62-64
Currently, participants age 50 or older may make an additional “catch-up” contribution annually of $6,500 (for 2022) over the current 401(k) contribution limit. SECURE 2.0 would make the following changes to the catch-up contribution rules:
As a revenue raiser, effective in 2023, catch-up contributions could only be made on a Roth basis – taxed when going in but not taxed when going out. This will limit the utility of catch-up contributions for individuals currently paying taxes at a higher rate than they expect to pay in retirement.
The catch-up contribution limit would be increased for inflation beginning in 2024.
And the limit for participants at least age 62 but not age 65 would be increased to $10,000.
SECURE 2.0 would also:
Instruct DOL to review its Interpretive Bulletin 95-1 related to selection of annuity providers “to determine whether amendments to [it] are warranted.” (This provision is a manifestation of emerging policymaker concern about pension risk transfer transactions.)
Increase the income limits on the Saver’s Credit.
Increase the cap on mandatory distributions from $5,000 to $7,000.
Add an additional tax credit for small employers (100 or fewer employees) for employer contributions in the first four years.
Instruct DOL to produce regulations allowing benchmarking of funds (e.g., for required participant disclosure) that include multiple asset classes (e.g., balanced funds and target date funds) based on a benchmark that is a blend of different broad-based securities market indices.
Instruct DOL, Treasury, and the PBGC, after consultation with “a balanced group of participant and employer representatives,” to (within two years) recommend ways to “consolidate, simplify, standardize, and improve” reporting and disclosure requirements.
Allow for simplified annual disclosure for “unenrolled” DC participants.
Relax the Required Minimum Distribution (RMD) annuity rules.
Reduce the excise tax on failure to make an RMD.
Eliminate the limit (under current RMD rules) on the value of a deferred annuity to 25% of the participant’s account.
Provide additional time to correct automatic enrollment and automatic escalation errors.
Provide new rules for the recovery (or non-recovery) and rollover of overpayments.
Reduce the allowable minimum service requirement for “long-term part-time employees” (working more than 500 but less than 1,000 hours per year) from 3 to 2 consecutive years.
Expand the Employee Plans Compliance Resolution System (EPCRS).
Require that participants be given a paper statement at least annually (for DC plans) or every three years (for DB plans) unless (1) disclosures are made in accordance with DOL’s rules for “Disclosure through electronic media” (29 CFR 2520.104b-1(c)) or (2) the participant has elected electronic disclosure.
Allow the employer to rely on an employee hardship certification for 401(k) hardship withdrawals.
Allow prior-year (retroactive) benefit increases until the tax return due date (with extensions).
Allow matching contributions to be made as Roth contributions.
The provisions of SECURE 2.0 generally have broad bipartisan support. As noted, the Senate is also working on comprehensive bipartisan retirement policy reform, and there is a chance that some combination of SECURE 2.0 and a Senate bill may pass in a post-election lame duck session.
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