House Passes and Senate Debates SECURE 2.0

On May 26th, the Senate Health, Education, Labor and Pension (HELP) Committee circulated a discussion draft  of the RISE and SHINE Act. This followed the House of Representatives’ passage of  H.R. 2954, the Securing a Strong Retirement Act of 2022 (“SSRA”). These are commonly thought of as competing versions of “SECURE 2.0”. Both Acts (if adopted in their current forms) would have wide-ranging impacts on the retirement industry. The following provisions are in both Acts: 

  • Reduce the service prerequisite for long-term part time employees. The SECURE Act requires that long term part-time employees—those who work at least 500 hours in three consecutive years—be permitted to  defer to the 401(k) plan (generally beginning in 2024). Both Acts would reduce this to two years—SSRA be ginning in 2023; RISE and SHINE beginning in 2024. 
  • Unenrolled Participants. Plans would be able to provide fewer notices to employees who elect not to participate. 
  • Cashout Limit. Mandatory cashout limit would be increased from $5,000 to $7,000. SSRA beginning in 2023; RISE and SHINE beginning in 2024.

The SSRA contains provisions that RISE and SHINE does not contain, including the following:

  • Increase the RMD age. The SECURE Act increased the  RMD age to 72. SSRA would increase the RMD age to 73 in 2023; age 74 in 2030; and age 75 in 2033.
  • QACA and EACA Re-enrollment. Any plan that adds a qualified automatic contribution arrangement (QACA) safe harbor or an eligible automatic contribution arrangement (EACA) design after 2024 would be required to re-enroll participants who opt out of participation at least once every three years. 
  • Certain Design Expenses Payable from Plan. Plans would be allowed to pay “incidental expenses solely  for the benefit of the participants and their beneficiaries” from plan assets. Examples of such expenses could include cost of amendments, enhancing a match or employer contribution.
  • Pension Plan Modifications. Boosting small plan tax credits: Currently, sponsors of  small plans can claim a tax credit equal to 50% of plan startup costs, capped at $250 per non-highly compensated employee (but with a minimum of $500 and a maximum of $5,000) for three years. SSRA would raise the  credit to 100% of startup costs (with the same min and  max), but only for employers with up to 50 employees.  In addition, certain sponsors of small plans could claim  a tax credit, up to $1,000 per employee, for providing employer contributions to non-highly compensated employees for up to five years.
  • Limit Overpayment Recovery. Would change the rules relating to recovery of overpayments (preventing recovery in many instances).The RISE and SHINE Act also includes the following pro visions that SSRA does not contain:
  • Emergency Savings Feature. Would allow plan sponsors to offer an “emergency savings account” feature  in the 401(k) plan. The ESA account would be limited to $2500 and permit immediate distributions not subject to the 10% penalty if a number of requirements are satisfied.
  • New notice requirements and reporting to both DOL and PBGC when a pension plan offers a lump sum window.
  • Change the content of the required pension plan annual funding notice, including revisions to require demographic information, average return on plan  assets, and information on interaction of plan funding and PBGC guarantee amounts.
  • Revise non-discrimination testing for cash balance plans to make variable rates more administrable.
  • Eliminate indexing of the PBGC variable rate premium, creating a static $48 rate.
  • Extending the permissive transfer of excess assets to a retiree health account.
  • Change catch-up provisions. Beginning in 2023, all catch-up contributions would have to be made on a Roth basis. Beginning in 2024, the catch-up contribution limit  would be increased to $10,000 (indexed after 2024), but only for the 3 years in which a participant attains age 62, 63, and 64. (In 2022, the indexed catch-up limit is $6,500).
  • Permit treatment of student loan payments as deferrals for matching contributions. Employers would  be permitted to treat an employee’s student loan payment as an elective deferral for purposes of determining employer matching contributions beginning in 2023. Currently loan payments can be matched by a plan, but this changes the treatment for nondiscrimination testing.
  • Update in-service withdrawals. Plan sponsors would be expressly allowed to rely on an employee’s certification that he or she meets the hardship distribution requirements (essentially a codification of current IRS  guidance). SSRA also would permit penalty-free withdrawals for victims of domestic abuse and would limit repayment of birth or adoption distributions to the three-year period following distribution.
  • Expand IRS’s EPCRS program The bill would expand the self-correction program making it nearly always available to correct plan errors.
  • Establish online lost and found database for pension benefits. DOL would be required to create a national database of employee benefit amounts to allow employees to track benefits across employers (and to aid employers in finding lost participants) and plans would have a new reporting obligation for plan years beginning at least two years after enactment.
  • Incentives. Employers would be allowed to provide small financial incentives to participants to encourage participation in a 401(k) plan.
  • Permit treatment of employer matching contributions as Roth. SSRA would permit employers to offer employer matching contributions on a Roth basis. (Currently, matching contributions must be pre-tax only, although the plan could then offer a Roth conversion.)
  • Requiring that new plans have auto-enrollment. SSRA would require most new defined contribution plans to contain automatic enrollment and automatic  deferral escalation features.

No action is required at this time because SECURE 2.0 is not yet law. The final version, if passed, is likely to be some combination of the two bills and might include a few extra provisions to boot! While it will change, now is still a great time to familiarize yourself with the provisions. You may also want to broach plan design issues (such as Roth  features and part-time employees) with your TPA and plan vendors now, as these provisions may take effect quickly if approved.