What SECURE Act 2.0 could mean for pension plans
VSCongress plans to amend and improve retirement through two similar but different laws in the House and Senate. The two seek to redefine and strengthen the current Establishment of Every Community for the Improvement of Retirement (SECURE) Act of 2019, 2019, collectively known as the SECURE Act 2.0.
The current House version was submitted in May of this year and is called the Securing Strong Retirement Act of 2021, while the Senate version was also introduced in May and is known as the Retirement Security and Savings Act. of 2021. Nationwide’s Chuck Rolph discusses some of the main points of the two pieces of legislation in a recent blog post.
A change that is identical in both bills is that employer contributions to âeligible student loan paymentsâ made for the employee can be treated as a matching contribution. This means that student loan payments can be considered an optional deferral or contribution under Safe Harbor plans and apply to 401 (k), 403 (b) and 457 (b) plans, as well as ‘to SINGLE IRAs.
âEmployers are permitted to apply the Actual Deferment Percentage (ADP) test separately to employees who receive matching contributions for qualified student loan payments,â says Rolph.
Both versions of the legislation proposed to modify and relax the rules of the RMD to allow commercial annuities attached to any qualifying pension plan to provide additional payment types, including lump sum payments and annual payment increases of less than 5%.
Both pieces of legislation include increasing the 403 (b) plan’s investment options by expanding tax and securities laws to allow plans with custodial accounts to invest in collective investment trusts.
Both versions in Congress would increase the amount of the tax credit available to small employers who initiate new plans, but the two plans have different methods of implementation and different amounts for the amount of the credit.
House legislation includes provisions to expand auto-enrollment and escalation in the new 401 (k) and 403 (b) plans by implementing auto-enrollment which would result in a default rate of between 3 and 10%. Plans would also be set to increase by 1% per year up to a maximum of 10%, and no more than 15%.
Senate legislation includes updated laws that would allow unmarried beneficiaries to transfer inherited IRAs into qualifying plans, such as a government 403 (a), 403 (b), and 457 (b). The Senate version also allows employees who have less than $ 100,000 in total to have eligible retirement accounts excluded from mandatory RMDs during their lifetime.
âThe legislation proposed by the ‘SECURE Act 2.0’ is much broader than what we have shared here. If enacted, it will provide plan sponsors and their members with many opportunities and challenges to comply, ânotes Rolph.
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