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The Secure Act 2.0 Aims to Help Americans Save More for Retirement

On March 29, 2022, the US House of Representatives passed the Securing a Strong Retirement Act of 2022 (Secure Act 2.0). The Senate will likely vote on the bill later this spring.

According to Forbes Advisor, half of the country isn’t saving for retirement and much of the other half isn’t putting enough away. With this legislation Congress aims to help Americans save more for retirement. Let’s look at some of the provisions of the bill.

  • Expanding automatic enrollment in retirement plans. For plan years beginning after December 31, 2022, Secure Act 2.0 would mandate automatic enrollment in 401(k) and 403(b) plans at the time of participant eligibility (opt-out would be permitted). The auto-enrollment rate would be at least 3% and not more than 10%, but the arrangement would need an auto-escalation provision of 1% annually (initially capped at 10%).  Auto-enrolled amounts for which no investment elections are made would be invested following Department of Labor Regulations regarding investments in qualified default investment alternatives. Additional exclusions also apply.

  • Increase in age for beginning date for mandatory distributions. For certain retirement plan distributions required to be made after December 31, 2021, for participants who attain age 72 after such date, the required minimum distribution age is raised as follows: in the case of a participant who attains age 72 after December 31, 2022, and age 73 before January 1, 2030, the age increases to 73; in the case of a participant who attains age 73 after December 31, 2029, and age 74 before January 1, 2033, the age increases to 74; and in the case of a participant who attains age 74 after December 31, 2032, the age increases to 75.

  • Higher catch-up limit for participants aged 62, 63 and 64. For taxable years beginning after 2022, the catch-up contribution amount for certain retirement plans would increase to $10,000 (currently $6,500 for most plans) for eligible participants who have attained ages 62 to 64 by the end of the applicable tax year.

  • Treatment of student loan payments as elective deferrals for purposes of matching contributions. For plan years beginning after December 31, 2022, employers may amend their plans to make matching contributions to employees based on an employee’s qualified student loan payments.  Qualified student loan payments are defined in the legislation as amounts in repayment of qualified education loans as defined in Section 221(d)(1) of the Internal Revenue Code (which provides a very broad definition).   This student loan matching concept is not a novel idea – prior proposed legislation included a similar provision, and the IRS has approved student loan repayment matching contributions in a private letter ruling.  

  • One-year reduction in period of service requirement for long-term part time workers. In a provision aimed at increasing retirement plan coverage for part-time employees, the bill would reduce the current requirement of three or more consecutive years to two or more consecutive years in which a part time employee attains 500 hours of service.   The preceding are the maximum service requirements that a plan can impose – employers are free to impose lesser service requirements.

  • Reduction of excise tax on certain accumulations. The Secure Act 2.0 would reduce the penalty for failure to take required minimum distributions from a qualified plan from 50% to 25%. The reduction in excise tax would be effective for tax years beginning after December 31, 2021.

It is not known exactly which provisions of the Secure Act 2.0 will be reflected in the Senate version, but significant changes to retirement plans are on the horizon.

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