On March 29, 2022, the U.S. House of Representatives—by an overwhelming bipartisan vote of 414 to 5—approved the Securing a Strong Retirement Act of 2022, also known as SECURE Act 2.0 since it builds on the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.
"By expanding automatic enrollment in employer-provided retirement plans, simplifying rules for small businesses, and helping those near retirement save more for longer, this legislation will help increase Americans’ access to retirement funds and help families save for the future," said House Majority Leader, Steny Hoyer, D-Md, in a Dear Colleague letter sent March 25 ahead of the March 29 vote.
The Senate version of SECURE Act 2.0, the Retirement Security and Savings Act, is similar to the House bill. It is anticipated that the Senate will pass some version of SECURE Act 2.0 and that both bills will be reconciled before being sent to President Biden for his signature.
Important retirement plan changes made by the House-passed version of SECURE Act 2.0, follow below.
- The House of Representatives approved SECURE Act 2.0 to substantially improve retirement savings plans March 29, 2022.
- A Senate version is also in the works with reconciliation of the two bills expected after the Senate passes its version.
- The House version increases catch-up contributions, mandates that such contributions go into Roth plans, and that matching Roth contributions be allowed.
- Mandatory distributions (RMDs) are delayed under SECURE Act 2.0 and part-time workers will be able to contribute sooner.
- Student loan matching contributions would be codified in law and several additional improvements would be included as well.
Mandatory Automatic Enrollment
The House version of SECURE Act 2.0 would require employers to automatically enroll eligible newly hired employees in new defined contribution plans at a pretax contribution rate of 3% of the employee's pay with an annual bump of 1% up to at least 10% (but no more than 15%). Employees could select a different contribution if they so chose.
SECURE Act 2.0 automatic enrollment applies only to new 401(k) and 403(b) plans established after the legislation is enacted into law.
Small businesses with 10 or fewer employees, those in business for less than three years, church plans, and government plans are also exempted from the automatic enrollment specification. For affected companies, employees who do not choose an investment election will be enrolled in a qualified default investment alternative (QDIA).
Increase Catch-Up Contributions
SECURE Act 2.0 keeps the existing 401(k) and 403(b) plan catch-up contribution limits for those age 50 through 61 , but increases the annual catch-up amount to $10,000 for participants ages 62 through 64, starting in 2024. The higher limit would also be indexed for inflation in future years. Under current law, the 2022 limit on catch-up contributions for employees who have reached age 50 is $6,500, indexed annually for inflation, for a total contribution limit of $27,000.
Other Catch-Up Contribution Changes
The House version of SECURE Act 2.0 also provides that, starting in 2023, all catch-up contributions to employer-sponsored plans must be made to Roth accounts, meaning that these contributions are made with post-tax dollars that can be withdrawn tax-free after retirement. Under current IRS rules, contributions can be made on either a pretax or Roth basis (if permitted by the plan sponsor).
The current catch-up amount for individual retirement account (IRA) contributions is $1,000 for individuals 50 and older. SECURE Act 2.0 indexes this limit to inflation starting in 2023. The catch-up limit for SIMPLE plans is raised from $3,000 to $5,000 and indexed for inflation in the House version of SECURE Act 2.0.
Allow Employers to Make Roth Matching Contributions
Currently, employer matching contributions must be paid into pretax 401(k) accounts. Under SECURE Act 2.0, starting in 2023, sponsors could allow employees to elect that some or all of their matching contributions be treated as Roth contributions. These post-tax contributions would not be excluded from employees' gross taxable income.
Delay Required Minimum Distributions (RMDs)
The SECURE Act of 2019 increased the age at which participants had to begin taking required minimum distributions (RMDs) from their employer-sponsored defined contribution plans and traditional (non-Roth) individual retirement accounts (IRAs) to 72, from 70½. SECURE Act 2.0 further increases the age for starting RMDs to:
- 73 starting in 2023 (for individuals who reach age 72 after Dec. 31, 2022, and age 73 before Jan. 1, 2030).
- 74 starting in 2030 (for individuals who reach age 73 after Dec. 31, 2029, and age 74 before Jan. 1, 2033).
- 75 starting in 2033 (for individuals who reach age 74 after Dec. 31, 2032).
Expedite Part-Time Worker Access to 401(k) Plans
The original 2019 SECURE Act set a 3-year timeline, beginning in 2021, for part-time workers to be able to contribute to their employers' 401(k) plan. SECURE Act 2.0 shortens that from three years to two years, making the first group eligible on Jan. 1, 2023.
Authorize Student Loan Matching
SECURE Act 2.0 legalizes the IRS-endorsed practice of employers making matching contributions based on employees' student loan payments, even if the employees are not making retirement plan contributions. This action cleans up concerns about compliance since current law doesn't specifically authorize the practice.
As written, SECURE Act 2.0 would also:
- Create a Retirement Savings Lost & Found Database at the Department of Labor to allow workers and retirees to find accounts left at former employers.
- Create an up-to-$1,000-per-employee tax credit for small businesses that offered a savings plan.
- Expand the Employee Plans Compliance Resolution System (EPCRS) to allow more errors to be self-corrected.
- Increase public awareness of the Saver's Tax Credit, the retirement savings contributions credit available to low- and moderate-income workers.
- Extend some design features of 401(k) plans to 403(b) retirement plans.
- Eliminate barriers to investing in lifetime income annuities.
- Allow nonprofits to offer defined contribution multiple-employer plans to their employees.