The House approved bipartisan legislation with $35 billion in retirement incentives in an overwhelming 414-5 vote on March 29, setting the stage for potential enactment later in the year. The Securing a Strong Retirement Act of 2022 (H.R. 2954) is commonly referred to as “SECURE Act 2.0” because it builds on the Setting Every Community Up for Retirement Enhancement (SECURE) Act enacted in 2019.
The outlook for enactment generally looks favorable, but negotiations with the Senate may be required first. A similar bipartisan bill, the Retirement Security and Savings Act (S. 1770), was introduced in the Senate last year. The House bill is fully offset with revenue raisers and is designed to expand plan coverage and encourage more retirement saving. Major proposals include:
- Auto-enrollment: Newly created Section 401(k) and 403(b) retirement plans generally would be required to provide an initial automatic enrollment rate of at least 3%, with existing plans exempt under grandfathering rules. Businesses with 10 or fewer employees and companies in business for less than three years would also generally be excluded from the mandate.
- Student loan matching: Employers would be permitted to make “matching” contributions to employee retirement accounts based on employees’ student loan payments even in the absence of direct elective salary deferrals to their retirement accounts.
- Annual catch-up amounts: The general catch-up contribution limit would increase to $10,000 ($5,000 for SIMPLE plans) for participants attaining ages 62, 63, and 64 (both indexed), though most catch-up contributions would need to be on a Roth basis (per final bullet point).
- Required minimum distributions: The beginning age for required minimum distributions would increase from age 72 (up from 70½ by the SECURE Act) to age 75.
- Small employer startup credit: The existing small employer startup credit would increase from 50% to 100% for employers with up to 50 employees. For defined contribution plans, there would be a new additional credit equal to a designated percentage of employer contributions made on behalf of its employees for the first five years after the plan is established, up to a per-employee cap of $1,000. This new additional credit would be phased out for employers with between 51 and 100 employees.
- Period of service requirement for long-term part-time workers: Section 401(k) eligibility would be expanded to include part-time workers who complete between 500 and 1,000 hours of service for two consecutive years (down from three years).
- Section 403(b) plans: Section 403(b) plans would be permitted to invest in collective investment trusts and the types of contributions available for 403(b) hardship distributions would be expanded to conform to the 401(k) rules.
- Roth matching and catch-up contributions: The legislation would be largely paid for with a pair of provisions that would require all catch-up contributions to be made on Roth basis (with the exception of SIMPLE and SEP plans) and would allow plans to provide participants with the option of receiving matching contributions on a Roth basis.
The Senate for now appears disinclined to pass H.R. 2954 in its current form, as key tax writers have signaled a desire to examine the provisions in more detail along with the similar Senate bill. The prospects for enactment of a compromise version remain good, but the procedure is still in flux.
The most likely scenario involves the House and Senate holding an informal pre-conference and agreeing on a final version before Senate passage. The Senate could also pass a separate version and hold a formal or informal conference at that point, but this would require the bill to pass the Senate twice. The legislation may also need a bigger legislative vehicle to carry it through the Senate. The best hope for stand-alone passage in the Senate would be a “hotline” unanimous consent procedure, but any single senator can derail that process. The bill may have to wait for a broader year-end tax extenders package to move.
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