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Senate Finance Leaders Formally Introduce EARN Act


We now have legislative language for the Enhancing American Retirement Now (EARN) Act—and a quick review finds a change from the concept draft regarding catch-up contributions.

In June, the Senate Finance Committee approved the EARN Act by a unanimous 28-0 vote, but the legislation at that point was only in conceptual form and the actual legislative language had not yet been drafted.

But with that legislative language now in hand, it appears the Finance Committee leaders have placed an income floor to the revenue-raising provision concerning catch-up contributions being treated as Roth contributions.

What’s Different

Under the original proposal, a section 401(a) qualified plan, section 403(b) plan, or governmental section 457(b) plan that permits an eligible participant to make catch-up contributions must require such catch-up contributions to be designated Roth contributions. The new language, however, now specifies that employees with wages below $100,000 would be permitted to make catch-up contributions on a pre-tax or after-tax Roth basis. The changes would apply to taxable years beginning after 2023.

The bill—now formally introduced by Senate Finance Committee Chairman Ron Wyden (D-OR) and the Committee’s Ranking Republican Sen. Mike Crapo (R-ID)—includes more than 70 proposals aimed at helping small businesses to adopt retirement plans, as well as making it easier for Americans to save by, among other things, allowing part-time workers to participate in retirement plans and expanding the Saver’s credit for low and middle-income workers. It also is intended to build off the Setting Every Community Up for Retirement Enhancement (SECURE) Act enacted in 2019.

With the House of Representatives having already approved the Securing a Strong Retirement Act of 2022 (H.R. 2954)—a.k.a. SECURE Act 2.0—last March by an overwhelming 414-5 margin, all eyes have been on the Senate. 

Many of the provisions in the Senate’s EARN Act,  along with the Senate Health, Education, Labor and Pensions (HELP) Committee’s RISE & SHINE Act (which was approved by the HELP Committee in June)  overlap with—or are similar to—the SECURE Act 2.0.  

Among the provisions contained in the roughly $40 billion EARN Act are several ARA-supported proposals, including:

  • the recently introduced Starter K legislation
  • an enhanced Saver’s match;
  • enhanced tax credits for the cost of new plans (similar provision included in SECURE 2.0);
  • a new stretch match 401(k) safe harbor;
  • reform of family attribution rules (similar provision included in SECURE 2.0);
  • top-heavy relief for excludable employees (similar provision included in SECURE 2.0); 
  • allowing 401(k) safe harbors to replace SIMPLE plans mid-year;
  • hardship distributions for emergencies; 
  • retroactive deduction of profit-sharing increases after the end of the year; and 
  • providing permanent rules relating to the use of retirement funds in the case of disaster.

And while not necessarily related to retirement policy, the legislation also includes a new revenue provision that would disallow a charitable deduction for a qualified conservation contribution if the charitable deduction claimed exceeds 2-½ times the sum of each partner’s relevant basis in such partnership, unless the contribution meets a three-year holding period test.

What’s Next?

While the timing for consideration in the Senate is not yet clear—or even whether the Senate will consider the legislation on a stand-alone basis in view of the time constraints and the upcoming mid-term elections—the release of the legislative language by the Finance Committee builds momentum and adds more details to what’s in the bill.

It is anticipated that the differences between these two Senate bills and the House’s SECURE Act 2.0 will be worked out in the coming weeks prior what many believe will be the inclusion of a final bill in a year-end lame-duck deal. 

“Under our reforms, many more workers would access resources for retirement and see meaningful federal retirement contributions year after year. I look forward to working with Senator Crapo and our counterparts in the House to get the EARN Act signed into law,” Senate Finance Committee Chairman Ron Wyden (D-OR) said in a statement upon releasing the legislative text.

Similarly, Senate Finance Committee Ranking Republican Mike Crapo (R-ID) stated, “Every member of the Finance Committee had a hand in drafting this legislation, and the broad range of ideas incorporated into the final bill is a testament to the power of bipartisanship. I worked closely with Chairman Wyden to get this bill to a place where it can be formally introduced today, and we will continue to work with our colleagues to push for its passage this year.”

The full text of the legislation is available here

A section-by-section summary is here