On March 29, 2022, the House of Representatives passed the Securing a Strong Retirement Act of 2022 (SECURE 2.0, HR 2954).  SECURE 2.0 is a comprehensive bill designed to increase access to retirement savings and includes a variety of provisions that would affect employer-provided retirement plans.

On June 14, 2022, the Senate Health, Education, Labor, and Pensions (HELP) Committee unanimously approved its version of SECURE 2.0, the Retirement Improvement and Savings Enhancement to Supplement Health Investments for the Nest Egg (RISE and SHINE, S. 4354) Act.

RISE and SHINE v. SECURE 2.0

The RISE and SHINE Act builds on SECURE 2.0, with some key differences.  Provisions in the RISE and SHINE Act not in SECURE 2.0 include:

  • Allowing the use of plan assets to pay some incidental plan design expenses;
  • Raising the limit on mandatory cash-out distributions from $5,000 to $7,000; and
  • The inclusion of the Emergency Savings Act of 2022 (the Emergency Savings Act). Under Emergency Savings Act, 401(k) plans could include emergency savings accounts.  Participants could make pre-tax contributions to their emergency savings accounts.  Employers could match those contributions, but the total amount in a participant’s emergency savings account could not exceed $2,500.  Participants could withdraw amounts from their emergency savings accounts generally at any time, without the requirements imposed on hardship withdrawals.

Provisions in SECURE 2.0 not in RISE and SHINE include:

  • Increasing the catch-up contribution limit;
  • Permitting matching contributions on student loan payments; and
  • Raising the required minimum distribution age.

WHAT’S NEXT? 

The Senate Finance Committee anticipates releasing its retirement reform bill by July 4.  The expectation is for the Finance Committee bill and the HELP Committee bill to merge into a final bill, which the Senate will vote on later this year.  The Senate bill will then be reconciled with SECURE 2.0, and both chambers will vote on the combined bill.

We will continue to monitor retirement reform bills as they move through Congress and will have additional updates as information becomes available.  Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

On March 29, 2022, the House of Representatives passed the Securing a Strong Retirement Act of 2022 (“SECURE 2.0”, HR 2954).  The vote was largely supported by both parties (414-5).  The Senate will likely act on the bill later this spring.  While we expect several changes in the Senate version, it is widely anticipated that the legislation will ultimately become law in some form.  Below we highlight a few provisions of the bill we believe are of interest to employers.

Expanding Automatic Enrollment in Retirement Plans

For plan years beginning after December 31, 2023, SECURE 2.0 would mandate automatic enrollment in 401(k) and 403(b) plans at the time of participant eligibility (opt-out would be permitted).  The auto-enrollment rate would be at least 3% and not more than 10%, but the arrangement would need an auto-escalation provision of 1% annually (initially capped at 10%).  Auto-enrolled amounts for which no investment elections are made would be invested following Department of Labor Regulations regarding investments in qualified default investment alternatives.  Plans established before the enactment of the legislation would not be subject to these requirements.  Additional exclusions also apply.

Increase in Age for Required Beginning Date for Mandatory Distributions

For certain retirement plan distributions required to be made after December 31, 2022, for participants who attain age 72 after such date, the required minimum distribution age is raised as follows: in the case of a participant who attains age 72 after December 31, 2022, and age 73 before January 1, 2030, the age increases to 73; in the case of a participant who attains age 73 after December 31, 2029, and age 74 before January 1, 2033, the age increases to 74; and in the case of a participant who attains age 74 after December 31, 2032, the age increases to 75.

Higher Catch-Up Limit for Participants Age 62, 63 and 64

For taxable years beginning after 2023, the catch-up contribution amount for certain retirement plans would increase to $10,000 (currently $6,500 for most plans) for eligible participants who have attained ages 62-64 by the end of the applicable tax year.

Treatment of Student Loan Payments As Elective Deferrals for Purposes of Matching Contributions

For plan years beginning after December 31, 2022, employers may amend their plans to make matching contributions to employees based on an employee’s qualified student loan payments.  Qualified student loan payments are defined in the legislation as amounts in repayment of qualified education loans as defined in Section 221(d)(1) of the Internal Revenue Code (which provides a very broad definition).   This student loan matching concept is not a novel idea – prior proposed legislation included a similar provision, and the IRS has approved student loan repayment matching contributions in a private letter ruling.  Given the difficulty many employers are finding in hiring and retaining employees, this provision of SECURE 2.0 may prove popular if it ultimately becomes law.

Small Immediate Financial Incentives for Contributing to a Plan

Under the “contingent benefit rule,” benefits (other than matching contributions) may not be contingent on the employee’s election to defer (subject to certain exceptions).  Thus, an employer-sponsored 401(k) plan with a cash or deferred arrangement will not be qualified if any other benefit is conditioned (directly or indirectly) on the employee’s deferral election.  SECURE 2.0 would add an exception to this restriction for de minimis financial incentives (such as gift cards), effective as of the date of enactment.

Safe Harbor for Corrections of Employee Deferral Failures

Under current law, employers could be subject to penalties if they do not correctly administer automatic enrollment and escalation features.  SECURE 2.0 encourages employers to implement automatic enrollment and escalation features by waiving penalty fees if, among other requirements, they correct administrative errors within 9 ½ months after the last day of the plan year in which the errors are made.  This provision would be effective as of the date of enactment.

One-Year Reduction in Period of Service Requirement for Long-Term Part-Time Workers

In a provision aimed at increasing retirement plan coverage for part-time employees, the bill would reduce the current requirement to permit certain employee participation following three consecutive years during which the employee attains 500 hours of service to two-consecutive years during which the employee attains 500 hours of service.   The preceding are the maximum service requirements that a plan can impose – employers are free to impose lesser service requirements.

Recovery of Retirement Plan Overpayments

The bill includes several provisions aimed at reducing the claw-back of overpayments from retirement plans to retirees to help ensure that the fixed income of retirees is not diminished.  Plan fiduciaries would have more latitude to decide whether to recoup inadvertent overpayments made to retirees from qualified plans.  Further, plan fiduciaries would be prohibited from recouping overpayments that are at least three years old and made due to the plan fiduciary’s error.  If a fiduciary did attempt to recoup an overpayment, the fiduciary could not seek interest on the overpayment, and the beneficiary could challenge the classification of amounts as “overpayments” under the plan’s claims procedures.  Certain overpayments protected by the new rule would be classified as eligible rollover distributions.

Reduction in Excise Tax on Certain Accumulations

SECURE 2.0 would reduce the penalty for failure to take required minimum distributions from a qualified plan from 50% to 25%.  The reduction in excise tax would be effective for tax years beginning after December 31, 2022.

Although we do not know exactly which provisions of SECURE 2.0 will be reflected in the Senate version, the Retirement Savings and Security Act of 2021 is expected to form the basis of the Senate’s bill.   Between the Senate’s current draft and this SECURE 2.0, significant changes to retirement plans are on the horizon.

We are available to help plan administrators understand the legislation as it progresses through Congress.  Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

NoteThe original version of this article was based on the bill as originally passed in the House on March 29.  On March 30, the bill was sent to the Senate.  The March 30 version of the bill included different effective dates with respect to certain of the provisions of the bill described herein.  Effective as of April 13, 2022, this article has been updated to provide for the March 30 effective dates. 

On August 3, 2022, retirement plan sponsors welcomed IRS Notice 2022-33 (“Notice”), which extends the deadline for adopting amendments to comply with the Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”), Section 104 of the Bipartisan American Miners Act (“Miners Act”), and certain provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).  For most plans, the amendment deadline is delayed three years to December 31, 2025, but some amendments are still required before year-end.

Deadline Extension

The most helpful delay applies to a CARES Act provision that requires changes to defined contribution plan language governing required minimum distributions.  Plan sponsors were struggling with the concept of amending the plan language governing the distribution timing rules for benefits paid upon the death of a participant, given that the governing Regulations are still in proposed form.  Employers now expect the Regulations to be finalized before the 2025 amendment deadline.

Under the Notice, the deadline for amending a plan for the 2020 required minimum distribution waiver under the CARES Act was extended to December 31, 2025.  Likewise, the SECURE Act requirement to change the age at which required minimum distributions begin has been delayed until 2025.  Other amendments for which the deadline has been delayed include the change in eligibility rules for part-time employees who work at least 500 hours during each of three consecutive years and permitting penalty-free withdrawals of qualified birth or adoption distributions of up to $5,000 per child. The extension also applies to the provision of the Miners Act, which permits in-service distributions after age 59½ in pension and governmental 457(b) plans.

Non-Governmental Qualified Plans, 403(b) Plans, and IRAs

For those required amendment items covered by the Notice, the December 31, 2025, amendment deadline applies to non-governmental qualified plans, 403(b) plans not maintained by a public school, and IRAs. For governmental qualified plans and 403(b) plans maintained by a public school, the deadline is 90 days after the close of the third regular legislative session of the legislative body with the authority to amend the plan that begins after December 31, 2023.  Finally, the deadline for amending a governmental plan under Section 457(b) is the later of 90 days after the close of the third regular legislative session of the legislative body with the power to amend the plan that begins after December 31, 2023, or, if applicable, the first day of the first plan year beginning more than 180 days after the date of notification that the plan was administered so it is inconsistent with the requirements of Section 457(b).

CARES Act Deadline Not Universally Extended

Commentators are accusing the IRS of having missed an opportunity to extend meaningful relief by failing to include all provisions of the CARES Act.  There is speculation that if Congress passes the retirement plan legislation currently pending (SECURE 2.0), the deadline for these missed CARES Act provisions will also be extended.  However, if additional relief is passed, given the busy year-end schedules and winter holidays, plans may have already been amended by the time it is announced.

2022 Action Items

The deadline for the following plan amendments remains December 31, 2022:

  1. Amending the plan to allow coronavirus related distributions;
  2. Amending the plan to allow increased limits on plan loans; and
  3. Amending the plan to allow an extended loan repayment period.

Similarly, the amendment deadline for the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (included in the Consolidated Appropriations Act of 2021) which provided limited distribution and loan relief for participants in qualified disaster areas was not extended.

If you have questions or would like assistance drafting your 2022 year-end amendments, please contact your Jackson Lewis attorney.