Congress releases SECURE 2.0 technical corrections discussion draft
On December 6, 2023, the Senate’s committee on Health, Education, Labor and Pensions (HELP) and two House committees (Ways and Means and Education and the Workforce) released a “discussion draft” of proposed technical corrections to SECURE 2.0 legislation passed at the end of last year.
The issues addressed – some of which were raised in a May 2023 letter from Congressional leaders to the Department of the Treasury and IRS – are technical and are not intended to change the substance of SECURE 2.0 as passed.
The proposed technical corrections applicable to retirement plans would (if finalized) clarify the
Timing of SECURE 2.0 increases in the applicable age/required beginning date for required minimum distributions (RMDs);
Limit on student loan repayments which qualify for a match is increased (where applicable) by the catchup contribution limit;
Starter 401(k) plan contribution limit (currently $6,000 indexed for inflation beginning in 2025) will be the same as the IRA limit (already $6,500 in 2023);
Initial ceiling on automatic contributions would be limited to 10% until 2026 (not, as under current law, 2025) under the rules requiring new 401(k) plans to include an automatic enrollment provision;
“Regular” limits on startup credits would not apply to the increased startup credits for small plans;
Provision for reporting under Retirement Savings Lost and Found rules by IRAs receiving mandatory distributions (“cash outs”) from covered plans and by deferred annuity contracts receiving distributions from covered plans.
Fix to the catchup contribution glitch – language in SECURE 2.0 which seemed to prohibit catchup contributions by any participant beginning in 2024.
This is, at this point, only a discussion draft – it’s not unlikely further technical issues (and, in some cases perhaps, non-technical issues) with SECURE 2.0 will be raised.
Retirement Savings for Americans Act would create a government-run plan
U.S. Senators John Hickenlooper (D-CO) and Thom Tillis (R-NC) and Representatives Lloyd Smucker (R-PA) and Terri Sewell (D-AL) introduced HR 6065, the Retirement Savings for Americans Act (RSAA) of 2023. If the bill were to be enacted, it would establish a new savings program, “The American Worker Retirement Plan” (AWRP), which would give eligible workers access to federally-sponsored, portable, tax-advantaged retirement savings accounts. Key features of the AWRP are described below.
Available to full and part-time workers without access to an employer-sponsored retirement plan.
Automatic enrollment at 3% of income, with the ability to increase or decrease the deferral rate or opt out.
Independent workers would also be eligible.
Low- and moderate-income workers would be eligible for a federal 1% automatic contribution (as long as they remain employed) and up to a 4% federal matching contribution via a refundable federal tax credit, phased out for those with income above certain levels.
Accounts would remain attached to workers throughout their lifetimes, and workers would be able to stop and start contributions at will.
The accounts would be the property of the worker and the assets could be passed down to future generations to help them build wealth and financial security.
Participants would be given a menu of simple, low-fee investment options to choose from, including lifecycle funds tied to a worker’s estimated retirement date, or index funds made of stocks and bonds.
While the provisions in the bill have bipartisan support, there is some skepticism in the industry as to whether a government-run retirement savings plan would be in the best interest of investors. Even more reason for business owners who do not offer a retirement plan to consider sponsoring their own workplace retirement plans now before a federally- mandated plan takes form.
Bill would allow employees to participate in 401(k) plans as early as age 18
On November 17, 2023, Senator Bill Cassidy (R-LA), the Ranking Member of the Senate Health, Education, Labor and Pensions (HELP) Committee, and Senator Tim Kaine (D-VA), a member of the committee, introduced the Helping Young Americans Save for Retirement Act. If the bill is enacted, the changes would take effect in 2026. While this proposal is unlikely to pass as a standalone bill, odds are it will be considered in the next round of broad-based, bi-partisan retirement policy legislation.
The bill would require 401(k) plan sponsors to allow employees as young as 18 to make contributions. The following conditions also would apply.
Not applicable to part-time employees
The long-term part-time coverage rule which allows an employee to participate if he or she has two years of part-time service of at least 500 hours per year would not apply until age 21.
Nondiscrimination and top-heavy rules would not apply
Plan sponsors could elect to exclude this group of young participants from nondiscrimination testing, including 401(k) actual deferral percentage (ADP) and actual contribution percentage (ACP) testing, and from consideration under the Top- Heavy rules.
Not counted towards the audit requirement for Forms 5500 initiall
Sponsors of plans with 100 or more participants must, in connection with filing the Form 5500 annual report, include an audit report of the plan’s financials from an independent qualified public accountant. For purposes of this reporting rule, employees participating solely by reason of this bill would not be taken into account until five years after they first entered the plan. If the bill is enacted, the changes would take effect in 2026.
For personalized insights and guidance tailored to your specific circumstances, consulting with a knowledgeable Trusted Advisor is a prudent step toward managing your business’s retirement plan. Reach out to KerberRose Retirement Plan services today to start planning your plan’s approach.
Sources:
Senate Committee on Health, Education, and Labor (n.d.). 118th Congress Session One. Senate.Gov. https://www.help.senate.gov/imo/media/doc/helping_young_americans_save_for_retirement_act.pdf