SECURE Act 2.0: The potential impact to retirement plan landscape

As part of a larger spending package that was signed into law on Dec. 20, 2019, Congress passed the Setting Every Community Up for Retirement Enhancement Act, also known as the SECURE Act. The SECURE Act’s goal was to improve retirement plan access and make it easier for small businesses to manage group plans.

Today, Congress is considering passing a SECURE Act 2.0. Here are some highlights:

AUTOMATIC ENROLLMENTS & INCREASES

The original SECURE Act encourages employers to automatically enroll participants in their retirement plans. Automatic enrollments tend to improve participation rates for the businesses (which can reduce per-participant costs) and increase retirement savings for participants.

The SECURE Act 2.0 hopes to expand this feature by requiring employers to have an automatic enrollment feature for newly eligible participants. Participants would be automatically enrolled in these retirement plans at 3% of their salary unless they opt out. In addition to automatic enrollments, participants’ contribution percentages would automatically increase by 1% of their salary each year until their contribution reaches 10%. Just like with the automatic enrollment, employees would be able to opt out of automatic increases.  

INCREASE RMD AGE

Most retirement plans require participants to begin drawing from their accounts once they reach a certain age, called required minimum distributions.  The original SECURE Act raised the RMD age from 70 ½ to 72. The SECURE Act 2.0 hopes to raise it to 75. This feature would get phased in slowly over the next 10 years. These changes would give retirees more freedom over their investment earnings. If they do not need the money, they can let their retirement savings grow tax-free for a few more years before pulling from their balance.

INCREASE CATCH-UP CONTRIBUTIONS

The SECURE Act 2.0 proposes raising the catch-up contribution to $10,000 for those ages 62 through 64.

OTHER CHANGES

• Retirement matching on student loan payments: Employers would be permitted to make matching contributions into employees’ retirement accounts based on those employees’ annual student loan payments. This would simultaneously encourage individuals to pay down student loans and help them save for retirement.

• Allowing part-time workers to participate in retirement plans: Currently, part-time employees who are working at least 500 hours per year for three consecutive years can participate in employer-sponsored plans. Secure Act 2.0 would decrease that down to two years.

• Establishing a national database for lost retirement plans: A national database for retirement accounts would make it easier for employers to find participants and for investors to track down their accounts.

• Expanding multiple employer plans: Multiple-employer plans, or MEPs, reduce costs for both participants and employers. The SECURE Act 2.0 would allow 403(b) plans to operate as MEPs, as well.

• Simplifying plan administration

• Simplifying annual disclosure requirements

• Expanding the opportunities to self-correct mistakes

• Making it easier to retrieve overpayments that were made to retirees

WHAT TO EXPECT

We cannot know for sure what this new bill will look like, but we expect it to include many of the provisions we’ve discussed above.

To View the print PDF, click HERE.