June/July 2022 Volume 32, Number 3 | |||||
House Passes SECURE Act 2.0There will be fundamental changes to retirement legislation if the Senate passes the SECURE Act 2.0, which the House of Representatives overwhelmingly passed by a vote of 414 to 5 in March.
This bill expands on the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which also had bipartisan support when former President Donald Trump signed it into law in December 2019. The bill is now in the Senate, where lawmakers are expected to attempt to incorporate provisions from other House and Senate bills. Automatic Enrollment According to SECURE Act 2.0, any company that institutes a new retirement plan must automatically enroll any new employees as soon as they are eligible. Initially, the employee’s pretax contribution would be 3% of their paycheck, after which it would rise every year by 1% to a minimum of 10% but no greater than 15%. Increased Catch-Up Contributions
Starting in 2024, the SECURE Act 2.0 increases annual catch-up contributions to $10,000, indexed for inflation, for those between 62 and 64. However, limits would remain the same for 50-year-old participants, namely $6,500, indexed every year for inflation, up to a total contribution of $27,000. Delayed Mandatory Distributions
Delayed Mandatory Distributions
Currently, employer-sponsored defined contribution plans and traditional individual retirement accounts require participants to start taking redundant minimum distributions at age 72. The new bill would gradually extend the age to 75 by 2033.
Expanded Eligibility for Part-Time Workers The previous Secure Act provided long-term part-time workers with the opportunity to contribute to their employer’s 401(k) plans. The new bill would reduce the time frame from 3 to 2 years, so part-time workers could start contributing sooner. Student Loan Matching
The bill also enables companies to offer employees matching retirement contributions when they make student loan payments. These matching contributions would fund the employee’s 401(k) plan, 403(b) plan, or SIMPLE IRA as they make their student loan payments. Other Provisions Another interesting provision the bill puts forward refers to creating an online database that would allow employees and retirees to locate any retirement accounts that might have been lost due to employers going out of business or merging with other organizations. What the SECURE Act 2.0 Doesn’t Address While the SECURE Act 2.0 will undoubtedly improve the retirement system, it fails to address two significant issues: Social Security and limited retirement plan enrollment. |
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