With SECURE Act 1.0 (officially titled “Setting Every Community Up for Retirement Enhancement Act”) still being implemented by many plan sponsors, Congress is now considering a new package of laws designed to help close the nation’s retirement savings gap, referred to as SECURE Act 2.0 (officially titled “Securing a Strong Retirement Act”).
While the House of Representatives’ Ways and Means Committee unanimously approved SECURE Act 2.0, it has still not been voted on by the full House, and certain representatives may want changes implemented. And it has likewise not been approved by the Senate. Thus while SECURE Act 2.0 appears to have bi-partisan support, passage in its current form is not a sure thing.
Below is a brief rundown of some of the highlights in SECURE Act 2.0 for defined contribution plan sponsors (again, provisions discussed below are subject to change):
- Required Minimum Distribution Age Increase: SECURE Act 1.0 increased the age at which required minimum distributions (RMDs) must begin from 70.5 to 72 beginning in 2020. SECURE Act 2.0 would increase the RMD age to 73 beginning January 1, 2022, age 74 beginning January 1, 2029, and age 75 beginning January 1, 2032.
- Increased Catch-Up Contributions: SECURE Act 2.0 would increase the contribution limit for catch-up contributions (currently $6,500 for those 50 or older) to $10,000 for those who are 62, 63, or 64 (returning to the $6,500 limit in the year an individual turns 65).
- Catch-Up Contributions as Roth Only: Effective January 1, 2022, catch-up contributions would be Roth only.
- Matching Contributions as Roth: Effective as of adoption, plan sponsors could opt to make matching contributions as Roth contributions.
- Student Loan Matching Contributions: SECURE Act 2.0 would allow plans to treat student loan contributions as elective deferrals for purposes of providing a matching contribution under Code § 401(m). SECURE Act 2.0 also contains changes to non-discrimination testing that would ease implementation concerns for this type of benefit.
- New Plans – Mandatory Automatic Enrollment and Automatic Increase: Applies only to new defined contribution plans (including both 401(k) and 403(b) plans) established after SECURE 2.0 is enacted. SECURE 2.0 requires new plans to automatically enroll participants between 3% and 10% of compensation and automatically increase their contributions by 1% until reaching at least 10% and not more than 15% of compensation. Exceptions apply to this requirement. SECURE Act 2.0 also codifies self-correction of automatic enrollment errors.
- Speed up Participation of Long-Time Part-Time Workers in 401(k) Plans: SECURE Act 1.0 implemented a requirement that long-term part-time workers (anyone who worked 500 or more hours in the last three plan years, beginning with plan year 2021) be allowed to participate in the employer’s 401(k) plan. SECURE Act 2.0 shortens the required period to only two years working 500 or more hours.
- Easier Plan Administration: SECURE Act 2.0 contains a number of provisions designed to ease administration of defined contribution plans. A few examples include: changes to benefit overpayment recovery requirements; reduction in excise taxes for failure to make RMDs from 50% to 25% (with further reduction if corrected in certain timeframes); and reduced notice requirement for unenrolled plan participants.
- Creation of Lost and Found for Missing Participants: Within 3 years of the date of enactment, the Department of Labor, Treasury Department and Commerce Department will coordinate the creation of a searchable database for lost participant benefits.
The above points are just a few of the items in SECURE Act 2.0 and we will continue to publish more detailed alerts on specific topics as SECURE Act 2.0 gets closer to becoming enacted.