In March, the U.S. House of Representatives voted 414 to 5 to advance the Securing a Strong Retirement Act {SECURE Act} of 2022. Additionally, two U.S. Senate committees unanimously approved companion bills in June [the EARN Act and RISE & SHINE Act], clearing the way for consideration by the full Senate later this year.
All three bills, collectively known as SECURE Act 2.0, seek to follow in the SECURE Act’s footsteps to improve retirement plan access and bolster Americans to prepare for retirement. While there are differences between the bills, some of which are rather large, they mostly touch on the same subject matter.
Some of the general concepts covered by at least two of the three bills include:
- Giving employers the ability to match student loan payments as if they were salary deferrals
- Creating a plan feature that would allow participants to take matching contributions on a Roth basis
- Increasing the catch-up contribution limit to $10,000
- Prohibiting pre-tax catch-up contributions
- Extending the required beginning date for required minimum distributions to age 75
- Allowing 403(b) PEPs
- Lowering the long-term, part-time employee eligibility period from 3 years to 2 years
- Allowing Roth SIMPLE IRAs and Roth SEPs
- Allowing plan administrators to exclude employees who do not meet the minimum age and service requirements from top-heavy testing
- Making the IRS’s Self Correction Program more friendly to employers by expanding its scope
- Making it more difficult to recover the overpayment of benefits from plan participants
- Aligning the hardship distribution rules for 403(b) plans with the rules for 401(k) plans
- Creating new in-service distribution options for victims of domestic abuse
- Increasing the feasibility of offering annuitized forms of benefits in 401(k) plans by simplifying the rules that apply to annuitized benefit payments
- Allowing 403(b) plans to invest in CITs and closed ETFs
Additionally, all three bills touch on automatic contribution arrangements; however, the bills approach the topic very differently, with the House bill and the EARN Act proposing the most significant changes.[1]
The below chart outlines the proposed automatic enrollment changes in the two bills.
| House Bill | EARN Act |
General Proposal | Require most new plans to implement automatic enrollment | Create a new safe harbor for nondiscrimination testing called the Secure Deferral Arrangement [SDA] |
Initial Automatic Deferral Rate | Between 3% and 10% | Between 6% and 10% |
Annual Automatic Escalation | 1% until reaching 10% | Same as House bill |
Matching Contribution |
Not Applicable |
for a max total of 4.8% of comp. |
Other provisions that are limited to just one of the three bills that make up SECURE Act 2.0 include:
- Increasing the SIMPLE IRA nonelective contribution limit to the lessor of 10% of pay and $5,000
- For some employers with fewer than 101 employees, [2] increasing the employee contribution and catch-up contribution limits for SIMPLE IRA plans to $16,500 and $4,750, respectively
- Creating an annual tax credit for plans that re-enroll participants at least once every three years
- Allowing employers to replace SIMPLE IRA plans mid-year with either a SIMPLE 401(k) or safe harbor 401(k) plan
- Creating new, deferral-only plans [Starter 401(k) and Safe Harbor 403(b)] that prohibit employer contributions, include automatic enrollment, use IRA contribution limits, and are exempt from ADP and top-heavy testing
- Allowing participants to withdraw up to $2,500 per year to pay for “high quality” long-term care insurance without having to pay the 10% excise tax on early distributions
- Directing the DOL and IRS to create regulations consolidating the qualified default investment alternative notice, safe harbor notice, automatic enrollment safe harbor notice, and permissive withdrawal notice into a single notice
We are always laser-focused on the quality of the service we provide to you. If you have any feedback that you think would be helpful, or if you have questions about SECURE Act 2.0, please reach out to your relationship manager.
[1] The RISE & SHINE Act’s changes require plans to re-enroll participants every 1 to 3 years to qualify for pre-emption of state laws related to automatic contributions.
[2] The limit would not increase for employers who have offered either a 401(a), 401(k), 403(a), or 403(b) plan within the last years. Additionally, the limit would only be available to employers with more than 25 employees who either match 100% of the first 4% of deferred compensation or provide a 3% nonelective contribution.