At the beginning of 2020, the SECURE (Setting Every Community Up for Retirement Enhancement) Act was signed into law making important changes to retirement plan regulation while looking to make retirement savings easier for American workers. Currently, there are several bills in Congress known collectively as “SECURE Act 2.0” that aim to build on that. While the SECURE Act’s improvements were significant, there is agreement in both political parties that more can be done to help Americans build the savings needed to retire securely.
While pandemic relief and the transition of the new administration has occupied Congress’ time so far this year, there has historically been bipartisan support for improving the retirement system, and two bills introduced last year have bipartisan sponsors. In the Senate, the ‘Retirement Security & Savings Act’ is sponsored by Senators Rob Portman (D-OH) and Ben Cardin (R-MD), while in the House the ‘Securing A Strong Retirement Act’ is sponsored by Richard Nel (D-MA) and Kevin Brady (R-TX).
Each bill has its own provisions that impact participants in employer-sponsored retirement plans as well as IRA owners, but there are significant ways in which they are similar:
- Student Loan Repayments – Repayments on student loan debt could receive matching contributions in an employer-sponsored retirement plan. This would allow workers to paydown debt while saving for retirement and not having to choose one or the other.
- Required Minimum Distributions (RMDs) – The SECURE Act increased the starting age of RMDs to 72, these bills would push that even further to 75. They would also exempt individuals with aggregate balances in employer plans and IRAs of less than $100,000 from having to take RMDs. The penalty of missed RMDs would also be lowered from the current 50% to 25%.
- Saver’s Credit – a tax credit up to $1,000 is currently available to low- and moderate-income workers to make it easier to save for retirement. Both bills would increase the income limit to qualify for the credit.
- Catch Up Contributions – Currently, those 50 years old and older can contribute an additional $6,500 to employer plans such as a 401(k) or 403(b) and SIMPLE IRAs allow for an additional $3,000 contribution. Both bills increase those amounts for workers 60 years old and older to $10,000 in 401(k) & 403(b) plan and $5,000 for SIMPLE IRAs.
- Qualified Charitable Distributions – Currently, individuals over 70 1/2 can directly transfer up to $100,000 tax-free from an IRA to a charitable organization and have it count towards RMDs. The bills would increase that amount to $130,000 and expand it to include employer-sponsored plans.
The House bill has additional provisions that go beyond those of the Senate bill. One of which would increase tax credits available to smaller companies (generally under 50 employees) to help offset the cost of establishing and running a retirement plan. Another would mandate new 401(k), 403(b) and SIMPLE IRA plans to include auto enrollment and auto escalation features to encourage employee savings. Allowing 403(b) plans to join Multiple Employer Plans, generally they are ineligible today, is part of this bill as well. The aim of these provisions is to expand retirement plan coverage and encourage employee savings.
While fewer details are known about the Biden Administration’s plans for retirement saving, it is clear they share the goals to increase plan coverage and participation. Tax incentives to companies for offering a plan and automatic savings features are areas in common with current Congressional bills. One difference is a change to the tax treatment of employee contributions from the current deduction to a flat refundable tax credit. The aim is to make retirement saving more equitable across income levels and help lower- and middle-income earners increase their savings.
While these bills are still in the early stages, there is enough commonality and expressed desire for additional changes to retirement plan law to warrant monitoring their progress. Depending on any final language, plan sponsors will want to work with their advisor and plan providers to not only ensure they are in compliance with any potential law changes, but also ensure plan design is still appropriate for the company and work force.
If you are a retirement plan client of Fragasso, we will actively monitor the progress of these changes and will discuss with you any final regulations and how they could impact your plan. If you are a business owner interested in learning more about Fragasso’s Retirement Plan Advisor services, I welcome the conversation. Please reach out to me directly at 412-227-3242 or firstname.lastname@example.org.