SECURE ACT 2.0

In October of 2020, Representatives Richard E. Neal (D-MA) and Kevin Brady (R-TX) introduced the Securing a Strong Retirement Act of 2020 (SECURE Act 2.0).  Some provisions of this proposed bill are below.

• Catch-up Contributions: One popular item included in the bill is increasing catch-up contribution limits to $10,000 (and $5,000 for SIMPLE plan participants) for those age 60 or over.  Currently, the allowable catchup contribution is $6,500 (and $3,000 for SIMPLE plan participants) beginning at age 50.
• Tax Credits
  • Start Up Tax Credit: The bill creates a new tax credit for businesses with 100 or fewer employees to offset up to $1,000 of employer contributions for each employee, which gradually phases out over five years.
  • Military Spouses: The bill gives small employers a tax credit with respect to their defined contribution plans if they make military spouses eligible to participate within two months of hire, make military spouses eligible for any matching or nonelective contribution upon eligibility, and 100% vest military spouses in all employer contributions.
  • Saver’s Tax Credit: This bill also removes the phase out of the Saver’s Tax Credit so all employees under the income cap would get a 50% tax credit, up to a higher $1,500 per year.
• Required Minimum Distributions (RMDs)
  • Because many Americans are working past typical retirement age, the bill raises the RMD age set by the SECURE Act from 72 to 75 for defined contribution (DC) plans and traditional IRAs.
  • In addition, the bill exempts accounts with $100,000 or less from RMDs and increases the annual limit that can be given to charity to $130,000.
• Lifetime Income Option: The bill would allow life time income annuities to be offered as Qualified Default Investment Alternatives (QDIAs) in retirement plans.
• Auto-Enrollment & Auto Escalation: One feature of the bill that has met mixed reviews is its requirement for newly-established defined contribution plans (401k or SIMPLE IRA plans) to enroll participants automatically with at least a 3% contribution rate and increase the rate through auto-escalation by 1% per year until it reaches 10%.  In the past, auto-enrollment was permitted but not required.  Employees do have the ability to opt out of auto-enrollment, but industry data shows that they typically will stay in the plan rather than opting out. Existing plans would be grandfathered so would not be required to add this feature.
• Student Loans: Another feature with mixed reviews is allowing individuals to pay down their student debt instead of contributing to a 401(k) plan and still receive an employer-matching contribution to the employer-sponsored retirement plan.
• Enrollment Incentives: One additional feature with mixed reviews is allowing employers to offer small, immediate financial incentives, such as gift cards, to encourage plan participation in the retirement plan; currently, only matching contributions may be used as an incentive to make elective contributions.
• Plan Administration
  • Missing Participants: The bill would create a federal Office of Retirement Lost and Found to maintain a database of unclaimed benefits.
  • Self-Correction: The bill would permit self-correction of inadvertent compliance errors at any time before IRS identified the violations.  NOTE: There is a similar program already in existence for certain corrections called the Voluntary Correction Program.  It appears the intent is to expand corrections that may be made under the program.
  • Overpayments: The bill would establish a system for recouping inadvertent overpayments to plan participants.
• 403(b)s:  403(b) plans would be allowed to invest in collective investment trusts (CITs), which has been touted as a way to help a plan sponsor to reduce costs.

At this point, SECURE Act 2.0 has been proposed and has bipartisan support but has been passed in neither the House nor the Senate.  We will continue to monitor the progress of the bill and release updates.