On March 29, 2022, the House of Representatives passed H.R. 2954, Securing a Strong Retirement Act of 2022, also known as SECURE 2.0. The bill, which has bipartisan support, builds upon the SECURE Act of 2019 with the goal “to increase retirement savings, simplify and clarify retirement plan rules, and for other purposes.” SECURE 2.0 expands and clarifies certain provisions of the SECURE Act. Next, the bill will go to the Senate where provisions from the Senate’s version, the Retirement Security and Savings Act of 2021, may be included.
The following highlights the primary changes within SECURE 2.0:
The required minimum distribution (RMD) age would increase gradually from 72 to 75, as follows:
The objective is to ensure that individuals have retirement savings to use during their lifetime.
The SECURE Act expanded eligibility to include long-term, part-time workers to contribute to their employers’ 401(k) plan who complete three consecutive years of service with at least 500 hours of service in each year. SECURE 2.0 reduces the time period to two years. It also provides that pre-2021 service is disregarded for vesting just as such service is disregarded for eligibility purposes under current law. As a result, long-term, part-time employees would become eligible for participation in the elective deferrals for plan years beginning in 2023.
SECURE 2.0 permits an employer to make matching contributions under a 401(k) plan, 403(b) plan or SIMPLE IRA with respect to “qualified student loan payments.” Qualified student loan payment is broadly defined as any indebtedness incurred by the employee solely to pay qualified higher education expenses of the employee. Qualified student loan payments made by the employee could be matched up to the annual elective deferral threshold. The employee would be required to certify to the employer making the matching contribution that the employee actually made the student loan payment; the employer may rely on the employee’s certification. This provision would be effective for plan years beginning in 2023.
Automatic enrollment of eligible employees was first introduced in 1998 and has significantly increased participation in 401(k) plans, particularly among younger, lower-paid employees, providing them with the opportunity to save for retirement. SECURE 2.0 would require 401(k) and 403(b) plans to automatically enroll an employee once the employee is eligible to participate. All 401(k) and 403(b) plans currently in place would not be subject to this requirement. Automatic enrollment would also include an automatic escalation in an employee’s annual rate of deferral. The initial rate would be at least 3% and would increase by 1% each year up to 10%. Employees would have the opportunity to change their deferral rates as well as opt out of participating in the plan. This provision would be effective for plan years beginning in 2024.
SECURE 2.0 conforms the plan amendment dates under the SECURE Act and the Coronavirus Aid, Relief and Economic Security (CARES) Act to the first plan year beginning in 2024 (2026 for governmental plans) rather than 2022 and 2024.
We encourage you to connect with your Baker Tilly advisor regarding how any of the above may affect your tax situation.