The House of Representatives passed Securing a Strong Retirement Act of 2022 (SECURE 2.0 or the Act, HR 2954) on Tuesday, March 29, 2022, on a bipartisan basis (414-5). The bill now heads to the Senate, which may advance the legislation later in April.
SECURE 2.0 builds on the Setting Every Community Up for Retirement Enhancement (SECURE Act, PL 116-94) signed into law in December 2019 to improve retirement savings opportunities for workers.
SECURE 2.0 covers, among other things:
- Automatic enrollment in retirement plans
- Increase in required minimum distribution age beginning date
- Enhancements to the age 50+ catch-up provisions
- Online lost and found for long-forgotten pension benefits
- Modified rules to allow SIMPLE IRAs to accept Roth contributions
Checkpoint will provide ongoing coverage of this proposed legislation as it moves through Congress.
Here’s a summary of key provisions most likely to impact taxpayers, businesses, and plan administrators (based on the March 25, 2022 version of the bill):
Expanding Coverage and Increasing Retirement Savings
Expanding automatic enrollment in retirement plans
SECURE 2.0 would require 401(k) and 403(b) plans to automatically enroll participants in the plans upon becoming eligible (and the employees may opt out of coverage). The initial automatic enrollment amount is at least 3% but no more than 10%. And then each year that amount is increased by 1% until it reaches 10%. All current 401(k) and 403(b) plans are grandfathered. There is an exception for small businesses with 10 or fewer employees, new businesses (i.e., have been in business for less than three years), church plans, and governmental plans.
This section would apply for plan years beginning after December 31, 2023. (Bill section 101. New IRC Sec. 414A)
Treatment of student loan payments as elective deferrals for purposes of matching contributions
The proposal would permit an employer to make contributions under a 401(k) plan, 403(b) plan or SIMPLE IRA, with respect to “qualified student loan payments.” Qualified student loan payment is broadly defined under the bill as any indebtedness incurred by the employee solely to pay qualified higher education expenses of the employee. Governmental employers would also be permitted to make matching contributions in a section 457(b) plan or another plan with respect to such repayments.
This section would apply to contributions made for plan years beginning after December 31, 2022. (Bill section 111. Amending IRC Sec. 401)
Modification of credit for small employer pension plan startup costs
The Act would make changes to the three-year small employer start up credit by:
- Increasing the startup credit from 50% to 100% for employers with up to 100 employees (up from previous 50 employee limit).
- The amount of the credit is increased by the applicable percentage of employer contributions on behalf of its employees, up to a per-employee cap of $1,000. This does not include employer contributions (i) as elective deferrals under Code Sec. 402(g)(3) or (ii) to a defined benefit plan under Code Sec. 414(j).
This section would apply to tax years beginning after December 31, 2021. (Bill Sec. 102. Amending IRC Sec. 45E)
The Act would also fix an issue with the credit so that employers joining a multiple employer plan (MEPs, which includes pooled employer plans or PEPs) in existence for more than three years can take advantage of the credit.
The MEP fix applies retroactively to tax years beginning after December 31, 2019. (Bill Sec. 112. Amending IRC Sec. 45E)
New credit for small employers for military spouse employees newly participating in defined contribution plans
SECURE 2.0 would provide a credit to small employers (no more than 100 employees earning more than $5,000 per year) for each non-highly compensated employee, married to a member of the military, that becomes a participant in a defined contribution plan. The plan must provide for prompt plan eligibility for the military spouses and the benefits must be nonforfeitable and comparable to the benefits of other employees.
The credit for each military spouse would be allowed for the year that the military spouse begins participating in the plan and for the two succeeding years. For each year the credit has two parts: $250 for the mere fact of the military spouse’s participation and a dollar-for-dollar credit for the first $250 that the employer contributes to the plan for the employee (resulting in a possible maximum credit of $1,500).
The credit would be available for tax years beginning after the date of enactment of the Act. (Bill section 113. New IRC Sec. 45U)
Enhancement of Saver’s Credit
SECURE 2.0 would set the applicable percentage of the saver’s credit at 50%, rather than having the percentage decline as income increases. The Act would also make the credit available to taxpayers with higher levels of adjusted gross income than under current law—via changes to the adjusted-gross-income-based phaseout of the credit.”
This section would apply to tax years beginning after December 31, 2026. (Bill section 104. Amending IRC Sec. 25B)
Increase in required beginning date age
The Act would increase the required minimum distribution age to 73 starting on January 1, 2023 (for individuals who attain age 72 after December 31, 2022, and age 73 before January 1, 2030); to 74 starting on January 1, 2030 (for individuals who attain age 73 after December 31, 2029, and age 74 before January 1, 2033); and to 75 starting on January 1, 2033 (for individuals who attain age 74 after December 31, 2032).
The section would apply to distributions required to be made after December 31, 2022, with respect to individuals who attain age 72 after such date. (Bill section 106. Amending Code IRC 401(a)(9)(C))
Enhancements to age 50+ retirement plan catch-up limit
The current $1,000 catch-up IRA contribution allowed for people aged 50 and over would be indexed for inflation. This section would apply to tax years beginning after December 31, 2023. (Bill section 107. Amending IRC Sec. 219)
The current limit on catch-up contributions to a retirement plan (currently $6,500, except in the case of SIMPLE plans for which the limit is $3,000) would be increased to $10,000 ($5,000 for SIMPLE plans, both to be indexed for inflation), for individuals who have attained ages 62, 63, and 64, but not age 65. This would apply to tax years beginning after December 31, 2023. (Bill section 108. Amending IRC Sec. 414(v))
One-year reduction in service required for long-term part-time workers
The Setting Every Community Up for Retirement Act of 2019 (SECURE Act) requires employers to allow long-term, part-time workers to participate in their 401(k) plans. The SECURE Act provision 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 a one year of service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes at least 500 hours of service.
SECURE 2.0 would reduce the three-year rule to two years. The Act also provides that pre-2021 service is disregarded for vesting purposes, just as such service is disregarded for eligibility purposes under current law
This section would apply to plan years beginning after December 31, 2022, except the provision related to pre-2021 service would apply retroactively as if included in the Secure Act (Bill section 116. Amending ERISA Sec. 202)
Simplification and Clarification of Retirement Plan Rules
Retirement savings lost and found
The proposal would create a national, online, lost and found for Americans’ retirement plans. The section also directs the Department of Labor, in consultation with Treasury, to issue regulations on what plan fiduciaries need to do to satisfy their fiduciary duties in trying to find missing participants.
This section would apply as of the date of enactment. (Bill section 306. Amending ERISA Sec. 523)
Expansion of employee plans compliance resolution system
The proposal would expand the Employee Plans Compliance Resolution System (EPCRS) to (1) allow more types of errors to be corrected internally through self-correction, (2) apply to inadvertent IRA errors, and (3) exempt certain failures to make required minimum distributions from the otherwise applicable excise tax. For example, the bill would allow for correction of many plan-loan errors through self-correction.
This section would apply as of the date of enactment of the Act. (Bill section 308. Amending IRC Secs. 401(a), 403(a), 403(b), 408(p) and 408(k))
Exclusion of certain disability-related first-responder disability payments
The proposal would permit first responders to exclude from gross income service-connected disability pension payments after reaching retirement age.
This section would apply to amounts received with respect to tax years beginning after December 31, 2027. (Bill section 312. Amending IRC Sec. 139)
Revenue Provisions
SIMPLE and SEP Roth IRAs
The proposal would allow SIMPLE IRAs to accept Roth contributions. In addition, the provision would also allow employers to offer employees the ability to treat employee and employer SEP contributions as Roth (in whole or in part).
This section would apply to tax years beginning after December 31, 2022. (Bill section 601. Amending IRC Sec. 408A)
Certain retirement plan catch-up contributions required to be Roth contributions
Under current law, catch-up contributions to a qualified retirement plan can be made on a pre-tax or Roth basis (if permitted by the plan sponsor). This section would provide that effective January 1, 2023, all catch-up contributions to qualified retirement plans would be subject to Roth tax treatment.
This section would apply to tax years beginning after December 31, 2022. (Bill section 603. Amending IRC Sec. 414)
Optional treatment of employer matching contributions as Roth contributions
Under current law, plan sponsors are not permitted to provide employer matching contributions in their 401(k), 403(b) and governmental 457(b) plans on a Roth basis. Matching contributions must be on a pre-tax basis only. This section would allow defined contribution plans to provide participants with the option of receiving matching contributions on a Roth basis.
This section would apply as of the date of enactment. (Bill section 604. Amending IRC Sec. 402A).
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