The Secure Act 2.0 passed the House of Representatives this week by a vote of 414-5. This piece of legislation moves now to the Senate. This bill was crafted to simplify the current retirement system and help workers save for retirement. Pay attention – sometimes what you plan is impacted by legislation!
The original Secure Act (1.0) passed in 2019. The first SECURE Act, also known as the Setting Every Community Up for Retirement Enhancement Act of 2019, included major provisions designed to increase access to tax-advantaged accounts and prevent retirees from outliving their assets.
Highlights of the Bill
If passed, retirement planning and retirement savings accounts will be changed.
- Automatic enrollment in retirement plans. The bill requires employers to automatically enroll eligible workers in 401(k) plans at a rate of 3% of salary, which would increase annually until the employee is contributing 10% of their pay. Employees could opt out or select a different contribution amount. Businesses with 10 or fewer employees or are less than 3 years old would be excluded from the mandate
- Increase in required minimum distribution age to 73 in 2022, 74 in 2029 and 75 by 2032, up from the current age 72
- Enhancements to the age 50+ catch-up provisions. Individuals age 62, 63 and 64 could make catch-up contributions of $10,000, up from $6,500
- Online lost and found for long-forgotten pension benefits. 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
- Modified rules to allow SIMPLE IRAs to accept Roth contributions. Another potential change that could help young workers is that they would be able to elect that all or some of an employer match be applied to a Roth 401(k), which would provide a tax benefit when they get to retirement
- 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
- Student loan borrowers would also get a retirement boost via the legislation, which would basically allow employers to match student loan payments as contributions to retirement.
- 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
- The proposal would permit first responders to exclude from gross income service-connected disability pension payments after reaching retirement age
- The proposed bill would also allow domestic abuse survivors to take a distribution of the lesser of $10,000 or 50% of the plan balance without penalty for one year following the abuse.
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