DEFINED CONTRIBUTION

Understanding SECURE 2.0 and the Retirement Security & Savings Act

Jun 8, 2021
  • BlackRock

Retirement continues to be one of the few truly bipartisan issues in Washington, as evidenced by the introduction of two bipartisan retirement bills that are currently under consideration.

On May 20th, Senators Robert Portman (R-OH) and Ben Cardin (D-MD) re-introduced the Retirement Security & Savings Act, which includes over 50 provisions designed to strengthen Americans’ retirement security.

The Retirement Security & Savings Act is similar to, and has many overlapping provisions with, the Securing A Strong Retirement Act, which was introduced by Representatives Richard Neal (D-MA) and Kevin Brady (R-TX) in the House on May 3rd and unanimously passed by the House Ways and Means Committee on May 5th.  These bills build on many of the changes to the defined contribution (DC) landscape enacted by the SECURE Act in December 2019.

Despite the bipartisan support behind both bills, there are several additional steps that must be taken before retirement legislation can be enacted. The Securing A Strong Retirement Act must be considered and passed by the full House of Representatives and the Retirement Security & Savings Act must be considered, marked-up, and passed by both the Senate Finance Committee and the full Senate. It is expected that the Senate Finance Committee will hold a retirement hearing as early as this summer and may mark-up the Retirement Security & Savings Act as early as this fall. Once the House and Senate have each passed bills, they must reconcile any differences between their respective bills before sending a final version to be signed by President Biden. While timing is very much unknown, this could happen closer to the end of the year.

The chart below highlights key similarities and differences between the two bills

Retirement Security & Savings Act (Portman-Cardin)

Securing A Strong Retirement Act (Neal-Brady)

Automatic enrollment

  • • Creates a new safe harbor with automatic deferral levels starting at 6% of pay in addition to the existing safe harbor at 3%. Offers a tax credit for employers that offer both safe harbors.
  • • Establishes a new three-year, $500 per-year tax credit for small businesses that automatically re-enroll plan participants into the employer plan at least once every three years.

• Requires an initial automatic enrollment rate of at least 3% for newly created 401(k) and 403(b) plans. Existing plans would be exempt.

Catch-up contributions

  • • Increases the 401(k) “catch-up” contribution limit to $10,000 and the SIMPLE contribution limit to $5,000 for participants aged 60 and up.
  • • Indexes to inflation the allowable catch-up contribution to Individual Retirement Accounts (IRAs).
  • • Increases the 401(k) “catch-up” contribution limit to $10,000 and the SIMPLE contribution limit to $5,000 for participants aged 62, 63, and 64.
  • • Indexes to inflation the allowable catch-up contribution to Individual Retirement Accounts (IRAs).

403(b)s

  • • Allows 403(b) plans to invest in collective investment trusts (CITs).
  • • Conforms 403(b) hardship rules to 401(k) hardship rules.
  • • Allows 403(b) plans to invest in CITs.
  • • Conforms 403(b) hardship rules to 401(k) hardship rules.
  • • Applies the pooled employer plan (PEP) rules from the SECURE Act to 403(b) plans.

Student loan matching

    • Allows employers to make a matching contribution to the employee’s retirement account based on his or her student loan payment.

Saver’s Credit

  • • Expands the existing Saver’s Credit income thresholds.
  • • Makes the Saver’s Credit directly refundable into retirement accounts for low-income savers.
  • • Directs the Internal Revenue Service (IRS) to increase public awareness of the Saver’s credit.

Required minimum distributions (RMDs)

  • • Raises the age for RMDs from age 72 to age 75 by 2032.
  • • Creates an exception from RMDs for individuals with $100,000 or less in aggregate retirement savings.
  • • Raises the age for RMDs from age 72 to age 75 by 2032.

Lifetime income

  • • Eliminates the barriers to including annuities in plans and IRAs from RMD regulations.
  • • Removes the 25% maximum contribution cap on qualified longevity annuity contracts (QLACs) in retirement accounts.
  • • Directs the Treasury Department to create regulations allowing ETFs to be widely available through individual variable annuities.
  • • Raises the maximum QLAC contribution cap from $135,000 to $200,000.
  • • Directs Treasury to allow variable and indexed annuities to be used as QLACs, provided that the contract guarantees a minimum level of annuity payments.
  • • Eliminates incentives not to partially annuitize.
  • • Eliminates the barriers to including annuities in plans and IRAs from RMD regulations.
  • • Removes the 25% maximum contribution cap on qualified longevity annuity contracts QLACs in retirement accounts.
  • • Directs the Treasury Department to create regulations allowing ETFs to be widely available through individual variable annuities.

Encouraging small businesses to offer plans

  • • Increases the current law tax credit for the smallest businesses starting a new retirement plan to 100% of costs, up from 50%.
  • • Simplifies rules for small businesses, including allowing all businesses to self-correct all inadvertent plan violations under the IRS’ Employee Plans Compliance Resolution System.
  • • Simplifies “top-heavy” rules for small business plans to reduce the cost of enrolling new employees.

Other provisions to expand access to retirement plans

  • • Expands the eligibility of 401(k)s to include part-time workers that complete between 500 and 1,000 hours of service for two consecutive years.
  • • Creates a national, online database of lost accounts.
  • • Makes it easier for military spouses who change jobs frequently to save for retirement.
  • • Directs Treasury, DOL and PBGC to review the current ERISA and Code reporting and disclosure requirements and make recommendations to Congress to consolidate, simplify, standardize and improve such requirements.

Performance benchmarks for target date funds

  • • Directs DOL to modify its regulations so that an investment that uses a mix of asset classes can be benchmarked against a blend of broad-based securities market indices.

Electronic delivery of plan documents

  • • Requires defined contribution plans to provide a paper benefit statement at least once annually unless the participant elects otherwise.

Expanding Roth

  • • Allows SIMPLE IRAs to be offered on a Roth basis.
  • • Permits Roth IRA amounts to be rolled to plans.
  • • Extends Roth RMD rules to Roth amounts in plans.
  • • Allows SIMPLE and SEP contributions to be designated as Roth.
  • • Allows employer matching contributions to be made on a Roth basis.
  • • Requires all age 50+ catch up contributions to be made on a Roth basis for 401(k), 403(b)s, and SIMPLEs.