There’s a lot still to unpack in the new SECURE 2.0 Act of 2022, but 24 hours after its publication, here are some additional highlights.
First off, it’s worth reiterating that the legislation still needs to be approved by both the House and Senate, and signed by President Biden. At this point, all expectations are that the legislation will be approved by Dec. 23, (the funding deadline to prevent a government shutdown) even though there might be some delay tactics employed, and signed into law shortly thereafter.
Another key point is that when the legislation is presumably signed by President Biden, that corresponding date will serve as the “date of enactment,” and several of the provisions contained in the legislation become effective on that date. Many other provisions have effective dates in 2023 or later years.
All in all, the legislation includes more than 90 provisions, the bulk of which were taken from the three House and Senate bills that unofficially comprised the SECURE Act 2.0 of 2022. Below are additional details on some of the provisions that we previously highlighted, as well as some additional provisions that might be of interest. The descriptions are based partially on a summary provided by the Senate Finance Committee.
As noted earlier, we are continuing to review the final legislation and will provide additional updates in the coming days and weeks. Also, be sure to save the date (Thursday, Jan. 26, 2023, at 2:00 p.m., ET) for a special webcast to learn about what’s in the new SECURE 2.0 Act of 2022, where ARA CEO Brian Graff and Chief Government Affairs Officer Will Hansen will discuss and analyze the effects major provisions will have on plan design, administration and operations. Register today.
Starter 401(k) plans for employers with no retirement plan (Section 121). Under the legislation, an employer that does not sponsor a retirement plan will be permitted to offer a new starter 401(k) plan (or 403(b) plan). The changes generally will require that all employees be default enrolled in the plan at a 3% to 15% deferral rate. The limit on annual deferrals will be $6,000 with an additional $1,000 in catch-up contributions beginning at age 50. This section is effective for plan years beginning after 2023.
Expanding automatic enrollment (Section 101). This provision essentially follows the House bill by requiring new 401(k) and 403(b) plans to automatically enroll participants in the respective plans upon becoming eligible (employees may opt out of participation). The initial automatic enrollment amount must be at least 3% but not more than 10%. Thereafter, the amount is increased by 1% each year until it reaches at least 10%, but not more than 15%. There is an exception for small businesses with 10 or fewer employees, new businesses (i.e., those that have been in business for less than three years), church plans, and governmental plans. This provision will be effective for plan years beginning after Dec. 31, 2024—although plans established as of the date of enactment are grandfathered. Thus, one needs to communicate with plan sponsors for plans being implemented in 2023 and 2024.
Modification of credit for small employer pension plan startup costs (Sections 102 and 111). This amounts to a massive financial incentive for more small businesses to offer a plan—a three-year small business startup credit increased from the existing credit of 50% of administrative costs, up to an annual cap of $5,000, to 100% for employers with up to 50 employees. Except in the case of defined benefit plans, an additional credit is provided, such that the amount of the additional credit generally will be a percentage of the amount contributed by the employer on behalf of employees, up to a per-employee cap of $1,000. This additional credit is limited to employers with 50 or fewer employees and phased out for employers with between 51 and 100 employees. This section is effective for tax years beginning after 2022. Meanwhile, Section 111 clarifies that employers joining multiple employer plans (MEPs), which includes PEPs, are eligible for the credit for all three years.
Saver’s Match (Sections 103 and 104). Section 103 repeals and replaces the existing nonrefundable Saver’s credit with respect to IRA and retirement plan contributions, changing it from a credit paid in cash as part of a tax refund (against taxes owed) to a federal matching contribution regardless of tax obligation that must be deposited into a taxpayer’s IRA or retirement plan. The match will be 50% of contributions up to $2,000 per individual. The match gradually phases out at various levels for single, married filing jointly and separate, and head of household. However, Section 103 isn’t effective until tax years beginning after 2026—and considering what would appear to be some significant mechanical and operational issues associated with depositing these monies into all those retirement accounts, that delayed timing is likely warranted. In addition, Section 104 directs the Treasury Department to increase public awareness of the Saver’s Match among low- and moderate-income taxpayers.
Multiple employer 403(b) plans (Section 106). With substantially the same provision in all three of the House and Senate bills, the legislation will now allow 403(b) plans to participate in multiple employer plans (MEPs) and pooled employer plans (PEPs), including relief from the one bad apple rule. These changes will be effective for plan years beginning after 2022.
Increase in age for RMDs (Section 107). Under current law, participants generally are required to begin taking distributions from their retirement plans at age 72. Further expanding the changes under the SECURE Act of 2019, this provision increases the required minimum distribution age from a current-law age 72 to age 73 starting Jan. 1, 2023, and increasing to 75 starting in 2033.
Note also that Section 204 of the legislation eliminates a penalty on partial annuitization, such that if a tax-preferred retirement account also holds an annuity, the account owner will be permitted to elect to aggregate distributions from both portions of the account for purposes of determining minimum distributions. This provision will be effective on the date of enactment, and the Treasury Secretary is directed to update the relevant regulations accordingly.
Treatment of student loan payments as elective deferrals for purposes of matching contributions (Section 110). This provision allows employees that are unable to save, or to save as much as they might, for retirement because they are instead repaying their student loans to receive matching contributions. As such, employers will be permitted (though not required) to make matching contributions under a 401(k) plan, 403(b) plan, or SIMPLE IRA with respect to “qualified student loan payments.” Governmental employers are also permitted to make matching contributions in a section 457(b) plan or another plan with respect to such repayments. For purposes of nondiscrimination testing, the provision permits a plan to test separately the employees who receive matching contributions on student loan repayments. Section 110 is effective for contributions made for plan years beginning after 2023.
Exemption for certain automatic portability transactions (Section 120). Under the legislation, a retirement plan service provider will be permitted to provide employer plans with automatic portability services, including the ability to automatically transfer a participant’s default IRA (established in connection with a distribution from a former employer’s plan) into the participant’s new employer’s retirement plan, unless the participant affirmatively elects otherwise. This section is effective for transactions occurring on or after the date which is 12 months after the date of enactment.
Note also that Section 304 of the legislation updates the dollar limit for mandatory distributions. Under current law, employers may transfer former employees’ retirement accounts from a workplace retirement plan into an IRA if their balances are $5,000 or less. Section 304 increases the limit from $5,000 to $7,000, effective for distributions made after 2023.
Improving coverage for part-time workers (Section 125). In further building on and modifying the part-time worker provision in the 2019 SECURE Act, which requires employers to allow long-term, part-time workers to participate in the employers’ 401(k) plans, the legislation reduces the three-year service requirement rule to two years. In earlier drafts of the House and Senate bills, this provision was effective for plan years beginning after 2022, but that date appears to have been changed to plan years after 2024 (however, the statutory language is not necessarily clear, and this is a point on which the ARA will be seeking clarification). Section 125 also provides that pre-2021 service is disregarded for vesting purposes, just as such service is disregarded for eligibility purposes under current law, effective as if included in the SECURE Act to which the amendment relates. This provision also extends the long-term part-time coverage rules to 403(b) plans subject to ERISA.
Emergency savings accounts linked to individual account plans (Section 127). To assist employees from tapping their retirement savings to cover an emergency, the legislation provides employers the option to offer to their non-highly compensated employees pension-linked emergency savings accounts. Employers may automatically opt employees into these accounts at no more than 3% of their salary, and the portion of an account attributable to the employee’s contribution is capped at $2,500 (or lower as set by the employer). Once the cap is reached, the additional contributions can be directed to the employee’s Roth defined contribution plan (if they have one) or stopped until the balance attributable to contributions falls below the cap.
Contributions are made on a Roth-like basis and are treated as elective deferrals for purposes of retirement matching contributions with an annual matching cap set at the maximum account balance (i.e., $2,500 or lower as set by the plan sponsor). The first four withdrawals from the account each plan year may not be subject to any fees or charges solely on the basis of such withdrawals. At separation from service, employees may take their emergency savings accounts as cash or roll it into their Roth defined contribution plan (if they have one) or IRA.
Note also that Section 115 of the legislation provides an exception from the 10% early distribution penalty for certain distributions used to address needs relating to personal or family emergency expenses. Only one distribution is permissible per year of up to $1,000, and a taxpayer has the option to repay the distribution within three years. No further emergency distributions are permissible during the three-year repayment period unless repayment occurs. This change will be effective for distributions made after 2023.
Additionally, Section 331 of the legislation provides permanent rules relating to the use of retirement funds in the case of a federally declared disaster. The permanent rules, which are based on previous disaster relief such as the CARES Act, will now allow up to $22,000 (instead of $100,000) to be distributed from employer retirement plans or IRAs for affected individuals, as well as increased participant loan limits from qualified plans and 403(b) arrangements.
Annual audits for group of plans (GoP) (Section 345). This provision seeks to address an issue that came up last year when the Department of Labor issued proposed regulations taking the position that a large plan that elects to participate in a Defined Contribution Group (DCG)—or what is described as a GoP—must continue to be subject to an independent qualified plan accountant audit (IQPA) and that the audit report for the plan would have to be filed with the consolidated Form 5500 of the DCG reporting arrangement. Section 345 clarifies that plans filing under a GoP need only to submit an audit opinion if they have 100 participants or more. As such, DOL and Treasury would continue to receive full audit information on at least the number of plans as under current law, according to the legislation. This provision will be effective on the date of enactment.
The Senate Finance Committee summary of the legislation is available here.
The text of the final legislation is here starting on page 2,046.
A Joint Tax Committee revenue estimate of SECURE 2.0 is here.
 Though none of the individual component bills bore the name, it had long been nicknamed SECURE 2.0, as it builds on the foundation laid by the SECURE Act passed in late 2019. Prior to reconciling the final bill, the package was comprised of three bills:
- the Securing a Strong Retirement Act (H.R. 2954) approved by the House of Representatives last March;
- the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg (RISE & SHINE) Act approved unanimously by the Senate Health, Education, Labor and Pensions (HELP) Committee last June; and
- the Enhancing American Retirement Now (EARN) Act, also approved unanimously last June by the Senate Finance Committee.