- Expanding retirement access. SECURE 2.0 Act could provide nearly 20 million new American workers with access to the workplace-based retirement system through a brand-new safe harbor 401(k) plan.
- Incentivizing small employers. The act provides a 100% tax credit for new plans to incentivize the creation of new workplace retirement programs by small businesses.
- Incentivizing lower earners. The act adopts a Saver’s Match Program that would incentivize retirement savings by providing a 50% matching contribution of up to $2,000 in retirement savings annually for lower- and middle-income Americans.
- More could be done. Experts note the act falls short of federally mandating employers over a certain size to establish retirement plans, which could be the most impactful enhancement available to a potential SECURE 3.0.
When President Joe Biden signed the $1.7 billon Omnibus bill on Dec. 29, the massive 4,000-plus-page piece of legislation included provisions that will impact American workers and their employers in the retirement benefits arena.
Called the “SECURE 2.0 Act of 2022,” the new legislation is an extension of the original SECURE Act, signed into law by President Trump in December of 2019. Much like the earlier version, SECURE 2.0 enjoyed rare near-unanimous bipartisan support.
“We are grateful to the many members of Congress and staff who worked tirelessly to get SECURE 2.0 included in the omnibus legislation,” Brian Graff, CEO of the American Retirement Association (ARA), said in a news release. “This important legislation will enhance the retirement security of tens of millions of American workers — and for many of them give them the opportunity for the first time to begin saving.”
SECURE 2.0 attempts to address that scenario with the following features, according to ARA:
- A Starter 401(k) that could provide nearly 20 million new American workers with access to the workplace-based retirement system through a brand new super simple, safe harbor 401(k) plan.
- A 100% tax credit for new plans to incentivize the creation of new workplace retirement programs by small businesses.
- A Saver’s Match Program that would incentivize retirement savings by providing a 50% matching contribution on up to $2,000 in retirement savings annually for lower- and middle-income Americans. Also, over 108 million Americans would be eligible for the Saver’s Match that would be directly deposited into their retirement account — boosting the savings of moderate-income earners.
“Overarchingly, I see SECURE 2.0 as a material set of enhancements to the original SECURE designed to expand retirement savings access to more Americans — and at a greater rate — in an easy-to-administer fashion for employers,” said Michelle Richter, executive director at the Institutional Retirement Income Council, in New York City.
Richter says that for new plans, it expands automatic enrollment (at a minimum of 3%) and auto-escalation (1% annually until at least 10% but not greater than 15%).
“This will be very impactful to increasing savings rates amongst new plan participants, and is the element of the legislation that most excites me,” she said.
For all plans, she adds, the Act:
- Increases the age at which required minimum distributions (RMDs) must begin.
- Indexes IRA contribution limits to inflation.
- Allows higher “catch-up” limits at ages 60-63.
- Treats student loan payments as elective deferrals for purposes of matching contributions, a “huge enhancement” in retirement savings capabilities for younger workers, according to Richter.
- Allows for up to $1,000 per year for certain emergency expenses repayable over three years.
- Creates a retirement savings “lost and found,” among many other laudable enhancements to improve the availability of employer-sponsored savings vehicles for participants.
“In combination, these provisions make it easier and less expensive for new plans to be established, which will be helpful to both participants and sponsors in expanding retirement savings access for more sponsors and participants,” Richter said.
Unfortunately, she adds, it also falls short of federally mandating employers over a certain size to establish retirement plans, which she believes would be the most impactful enhancement available to a potential SECURE 3.0.
“In the interim,” she said, “many states are running with the ball and establishing their own mandates and programs for this purpose.”
Richter says with respect to annuities specifically, SECURE 1.0 was substantially more impactful than is SECURE 2.0, but a few helpful provisions within 2.0 include:
- Repeals 25% of account limitation for a qualified longevity annuity contract (QLAC).
- Increases from $145,000 in 2022 and what would have been $155,000 limit in 2023 to $200,000;
- Allows an insurer to offer a 90-day free look period on these contracts, retroactive to 2014.
“Since they can only be offered on an opt-in basis within qualified default investment alternatives (QDIAs), I do not see this change as one likely to be materially impactful to this nascent market,” she said.
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