November 4, 2020 | Bill Cass, CFP®, CPWA®
The House last week introduced a bipartisan bill to expand retirement plan participation and savings.
The legislation, Securing a Strong Retirement Act of 2020, is a follow-up to last year’s comprehensive retirement package, the SECURE Act. The bill was introduced by the House Ways and Means Committee.
While not likely to pass until 2021, the Senate may begin putting together a similar proposal as this bill moves through the House. The bill is being referred to as “Secure 2.0” and includes numerous provisions to expand the rules around retirement savings plans and accounts.
What is being proposed?
Most provisions are designed to expand already popular provisions to help workers save and to help retirees retain assets. Other provisions address issues of flexibility and increasing access to retirement savings plans for more workers.
Here are five key areas targeted by the bill:
1. Require auto-enrollment in retirement plans
- Require 401(k), 403(b) and SIMPLE plans to automatically enroll participants in the plans upon becoming eligible. Employees may still opt out of the plans. The initial deferral rate must be at least 3% and no more than 10%. Each year, the auto-deferral rate will increase the contribution amount by 1% until reaching 10%
- Current plans would be exempt from the new rules. There are also exceptions for small businesses with 10 or fewer employees, new businesses (i.e., have been in business for less than three years), church plans, and governmental plans
2. Modifications to required minimum distributions (RMDs)
- Increase the minimum age for taking an RMD age to 75 from 72
- Reduce the penalty for not taking an RMD to 25% of required balance from 50%. If the mistake for not taking an RMD is corrected in a timely manner, the penalty would be further reduced to 10%
- Eliminate the RMD requirement for an individual with an aggregate retirement account balance (IRAs and defined contribution retirement plans) that does not exceed $100,000
3. New catch-up contributions for those age 60 and older
- For 2020, catch-up contributions for those age 50 and older are $6,500 for retirement plans and $3,000 for SIMPLE IRAs. For those age 60 and older, the new legislation would increase these amounts to $10,000 and $5,000, respectively (both indexed for inflation)
4. Enhancements to qualified charitable distributions (QCDs)
- The maximum amount of a QCD would increase to $130,000 per account owner from $100,000
- QCDs are currently available with IRAs only. The legislation would extend QCDs to retirement plans
- The IRA charitable distribution provision would be expanded to allow for one-time distributions to charities through charitable gift annuities, charitable remainder unitrusts, and charitable remainder annuity trusts
- For more detail on QCDs, please refer to our piece, “Donating IRA assets to charity”
5. New retirement benefit for those with student loan debt
- Employers would be allowed to make matching retirement plan contributions for participants making “qualified student loan payments”
- The premise of the rule is to provide retirement savings to plan participants who are not able to make salary deferrals into a plan because of existing student loan debt obligations
Outlook for Secure 2.0
Overall, there is strong bipartisan support for the provisions included in this new legislation. It’s likely the Senate Finance Committee will put together a similar package of retirement-related provisions that would potentially be reconciled with the House version possibly next year. Perhaps the biggest outstanding issues are the cost of the legislation, and the likelihood of provisions that would raise revenue to cover the cost of new benefits afforded by the legislation. Currently, there doesn’t appear to be any “pay-fors” included in the legislation. For example, the repeal of stretch distributions within the original SECURE Act was designed to raise revenue to offset the cost of other provisions in the law. Legislators may add revenue procedures as this legislation proceeds through Congress.
This article was written by William Cass (email@example.com) at Putnam Wealth Management.
It was not produced by Carmichael Financial, LLC nor Twenty Over Ten.