House Passes the Securing a Strong Retirement Act

On March 29, 2022, the U.S. Home of Representatives—by an awesome bipartisan vote of 414 to five—authorized the Securing a Robust Retirement Act of 2022, also called SECURE Act 2.0 because it builds on the Setting Each Group Up for Retirement Enhancement (SECURE) Act of 2019.

“By increasing automated enrollment in employer-provided retirement plans, simplifying guidelines for small companies, and serving to these close to retirement save extra for longer, this laws will assist enhance Individuals’ entry to retirement funds and assist households save for the long run,” mentioned Home Majority Chief, Steny Hoyer, D-Md, in a Expensive Colleague letter despatched March 25 forward of the March 29 vote.

The Senate model of SECURE Act 2.0, the Retirement Safety and Financial savings Act, is much like the Home invoice. It’s anticipated that the Senate will go some model of SECURE Act 2.0 and that each payments will probably be reconciled earlier than being despatched to President Biden for his signature.

Essential retirement plan adjustments made by the Home-passed model of SECURE Act 2.0, observe under.

Obligatory Automated Enrollment

The Home model of SECURE Act 2.0 would require employers to robotically enroll eligible newly employed staff in new outlined contribution plans at a pretax contribution price of three% of the worker’s pay with an annual bump of 1% as much as at the least 10% (however not more than 15%). Staff may choose a unique contribution in the event that they so selected.

Small companies with 10 or fewer staff, these in enterprise for lower than three years, church plans, and authorities plans are additionally exempted from the automated enrollment specification. For affected firms, staff who don’t select an funding election will probably be enrolled in a certified default funding different (QDIA).

Improve Catch-Up Contributions

SECURE Act 2.0 retains the present 401(ok) and 403(b) plan catch-up contribution limits for these age 50 via 61 , however will increase the annual catch-up quantity to $10,000 for individuals ages 62 via 64, beginning in 2024. The upper restrict would even be listed for inflation in future years. Underneath present regulation, the 2022 restrict on catch-up contributions for workers who’ve reached age 50 is $6,500, listed yearly for inflation, for a complete contribution restrict of $27,000.

Different Catch-Up Contribution Modifications

The Home model of SECURE Act 2.0 additionally supplies that, beginning in 2023, all catch-up contributions to employer-sponsored plans should be made to Roth accounts, which means that these contributions are made with post-tax {dollars} that may be withdrawn tax-free after retirement. Underneath present IRS guidelines, contributions will be made on both a pretax or Roth foundation (if permitted by the plan sponsor).

The present catch-up quantity for particular person retirement account (IRA) contributions is $1,000 for people 50 and older. SECURE Act 2.0 indexes this restrict to inflation beginning in 2023. The catch-up restrict for SIMPLE plans is raised from $3,000 to $5,000 and listed for inflation within the Home model of SECURE Act 2.0.

Enable Employers to Make Roth Matching Contributions

At the moment, employer matching contributions should be paid into pretax 401(ok) accounts. Underneath SECURE Act 2.0, beginning in 2023, sponsors may enable staff to elect that some or all of their matching contributions be handled as Roth contributions. These post-tax contributions wouldn’t be excluded from staff’ gross taxable earnings.

Delay Required Minimal Distributions (RMDs)

The SECURE Act of 2019 elevated the age at which individuals needed to start taking required minimal distributions (RMDs) from their employer-sponsored outlined contribution plans and conventional (non-Roth) particular person retirement accounts (IRAs) to 72, from 70½. SECURE Act 2.0 additional will increase the age for beginning RMDs to:

• 73 beginning in 2023 (for people who attain age 72 after Dec. 31, 2022, and age 73 earlier than Jan. 1, 2030).
• 74 beginning in 2030 (for people who attain age 73 after Dec. 31, 2029, and age 74 earlier than Jan. 1, 2033).
• 75 beginning in 2033 (for people who attain age 74 after Dec. 31, 2032).

Expedite Half-Time Employee Entry to 401(ok) Plans

The unique 2019 SECURE Act set a 3-year timeline, starting in 2021, for part-time employees to have the ability to contribute to their employers’ 401(ok) plan. SECURE Act 2.0 shortens that from three years to 2 years, making the primary group eligible on Jan. 1, 2023.

Authorize Scholar Mortgage Matching

SECURE Act 2.0 legalizes the IRS-endorsed follow of employers making matching contributions primarily based on staff’ scholar mortgage funds, even when the workers don’t make retirement plan contributions. This motion cleans up issues about compliance since present regulation would not particularly authorize the follow.

Extra Provisions

As written, SECURE Act 2.0 would additionally:

• Create a Retirement Financial savings Misplaced & Discovered Database on the Division of Labor to permit employees and retirees to seek out accounts left at former employers.
• Create an up-to-$1,000-per-employee tax credit score for small companies that provided a financial savings plan.
• Increase the Worker Plans Compliance Decision System (EPCRS) to permit extra errors to be self-corrected.
• Improve public consciousness of the Saver’s Tax Credit score, the retirement financial savings contributions credit score out there to low- and moderate-income employees.
• Lengthen some design options of 401(ok) plans to 403(b) retirement plans.
• Eradicate limitations to investing in lifetime earnings annuities.
• Enable nonprofits to supply outlined contribution multiple-employer plans to their staff.