The Legal Brief

SECURE ACT 2.0: WHAT TO KNOW

April 11, 2022

By: Rebecca G. M. Krehbiel and Robert G. Tweel

The House of Representatives passed the Securing a Strong Retirement Act of 2022 (“SECURE 2.0” or “the Act”, HR 2954) on Tuesday, March 29, 2022.  The Act now heads to the Senate, where it is expected to have significant bipartisan support.

SECURE 2.0 builds on the Setting Every Community Up for Retirement Enhancement (“SECURE Act”, PL 116-94) signed into law in December 2019, which was enacted to improve retirement savings opportunities and access for workers by expanding coverage and increasing savings as well as simplifying and clarifying plan rules.

Building on popular changes from the SECURE Act, SECURE 2.0 provides a number of additional changes aimed at further encouraging retirement savings for employees and increasing the accessibility of retirement plans.  These proposals include:

 

• Mandating automatic enrollment in most new 401(k) and 403(b) plans and permitting retroactive first year elective deferrals for sole proprietors.

• Increasing the credit for small employer pension plan startup cost and expanding the number of companies that qualify.
• Enhancing the saver’s tax credit by increasing public awareness of the credit and increasing the number of people who qualify.
• Raising (gradually) the age at which employees must start taking minimum required distributions from age 72 to age 75.
• Providing a higher catch-up limit ($10,000 for 401(k)s and 403(b)s, $5,000 for SIMPLE plans) for those aged 62-64 and indexing the current $1,000 catch-up contribution for inflation.  As a revenue raising provision, the Act also requires catch-up provisions to be designated as Roth contributions.
• Allowing a 403(b) plan to be established and maintained as a multiple-employer plan. 
• Permitting matching contributions for employees making student loan payments, even if the employee is not otherwise contributing to the plan.  Additionally, the Act would allow employees to elect a portion or all of their matching contributions be treated as Roth contributions.

• Expanding and clarifying rules to improve eligibility and coverage for long-term, part-time workers by reducing the part-time eligibility requirement from 3 consecutive years in which the employee completes at least 500 hours of service to two years.
• Establishing an online retirement savings lost and found through the Department of Labor intended to assist individuals in recovering benefits from former employers who may have gone out of business or merged.

 

SECURE 2.0 also contains measures intended to benefit plan administrators by simplifying and clarifying retirement plan rules, such as:

• Providing new statutory rules to correct benefit overpayments, including limiting liability of the plan fiduciary for not recovering inadvertent benefit overpayment, and setting limitations on recoupment from participants and beneficiaries.
• Increasing the permissible dollar limit for involuntary distributions (the mandatory cashout limit where distributions can be made without a participant’s consent) from $5,000 to $7,000.
• Expanding the Employee Plan Compliance Resolution System to allow more types of plan errors to be corrected through self-correction and to apply to inadvertent errors as well as to provide an excise tax exemption for certain failures to make required minimum distributions.
• Eliminating the "first day of the month" requirement for governmental 457(b) plans.
• Changing top-heavy testing rules to allow employers to perform the testing separately on excludable and non-excludable employees which is intended to remove an employer’s incentive to exclude certain employees from access to 401(k) plans.
• Allowing plans to rely on an employee’s self-certification in determining whether to make hardship distributions as well as adjusting the rules for hardship distributions under 403(b) plans to match those for 401(k) plans.  Additionally, employees experiencing domestic abuse could take penalty-free withdrawals of up to $10,000.
• Reforming the family attribution rules.
• Allowing amendments to increase benefit accruals under the plan for the previous plan year until employer tax return due date.

Given the broad bipartisan support for and relatively quick passage of the SECURE Act as well as the ease in which SECURE 2.0 passed the House, it is expected that SECURE 2.0 will likely pass this year.  Stay tuned for additional news as the legislative process unfolds.