SECURE 2.0: More Coming Changes to Retirement Plans

More than half of working Americans have reported feeling behind in meeting retirement saving goals. Concurrently, one-third do not have any retirement savings or account set up at all. To make matters worse, the economic challenges imposed by the COVID pandemic meant that retirement savings were needed to meet routine expenses. Although necessary, it has made retirement planning and savings challenges even more serious and complicated. These unfortunate situations are becoming more common and are exactly the reason why Congress is eager to pass the Securing a Strong Retirement Act of 2021, more commonly known as the SECURE Act 2.0. The legislation builds upon previous efforts from 2019, has bipartisan support, and was already passed by the House in late March. It is now under consideration in the Senate where it is expected to undergo changes, but likely only minor ones. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

The Original SECURE Act

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed just weeks before COVID-19 hit the U.S. Its three main provisions were to:

• Raise the age for required minimum distributions (RMDs) from 70 ½ to 72.
• Expand access to traditional IRAs past age 70, offer multiple employer plans (MEPs) for small businesses, and a startup tax credit for new workplace retirement plans.
• Permit taxpayers with employer-sponsored retirement plans to convert savings into annuities.

Mostly, the SECURE Act aimed to incentivize and streamline retirement plan participation for both workers and employers.  Concurrently, there were other retirement planning changes, too – like permitting penalty-free withdrawals for the birth or adoption of a child, automatic enrollment for 401(k) plans, and more.

Key Elements of the SECURE Act 2.0

• Enhanced Automatic Enrollment – The legislation would require employers to implement mandatory automatic enrollment for new defined contribution plans established after 2021. When implemented, it would begin at three percent of an employee’s pay, pre-tax. Contributions would automatically increase by one percent each year thereafter until annual pre-tax contributions reach at least 10 percent with a maximum of 15 percent. Naturally, a participant can change this rate at any time.
• Expanded Catch-Up Contributions – Catch-up contribution limits for employees 50 and older are currently limited to $6,500 in 2022. The new legislation would permit employees 62-64 the opportunity to contribute up to $10,000 per year in catch-up contributions. The amount would be indexed annually for inflation. If passed, this provision would take effect beginning in 2023.
• Delay Required Minimum Distributions – The first SECURE Act pushed back the age for required minimum distributions (RMDs). SECURE Act 2.0 does it again: to 73 in 2022, 74 by 2029, and 75 by 2032. Though some retirees take RMDs to pay for living expenses, if the funds aren’t needed, they can be left in the plan to generate future retirement income.
• Extend Retirement Savings for Employees Paying Student Loans – Many employees who attended college or graduate school defer retirement savings in favor of paying student loans. SECURE 2.0 would grant these employees matching employer contributions equal to the amount paid to student loans, up to a certain percentage of salary. Matching contributions for these payments would vest on the same schedule as other matching contributions. In addition to benefiting employees with student loan debt who otherwise wouldn’t save for retirement, vesting employer matching contributions for student loan payments could help the plan meet certain nondiscrimination requirements. Plans would be permitted to perform some separate nondiscrimination tests for student loan matching.
• Make Retirement Plans Easier for Employers to Offer – Tax credits to help offset the cost of starting a new retirement plan became available in the first SECURE Act. These tax credits would be expanded from 50 percent to 100 percent of startup costs for companies with 100 or fewer employees (up from 50). The per-employee tax credit cap would be $1,000. 403(b) plans at not-for-profit organizations would get help in the form of lower administrative costs and regulations.

Finally, some penalties for reporting mistakes could be lower for all types of plans. There would be more opportunities for self-correction for common errors in participant loans or employee elective deferrals.

Contact Us

Many of the proposed changes in the SECURE Act 2.0 will make it easier for workers to meet retirement saving goals. Since the legislation is still under review, it is possible additional modifications will be made. Despite this, it does provide important insight into the potential changes which may be forthcoming. If you have questions about the information outlined above or need assistance with your retirement plan audit, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.