The SECURE Act, short for Setting Every Community Up for Retirement Enhancement Act, passed in 2019 and was the first step on the road toward modernizing the retirement system in the United States. Subsequent legislation, nicknamed SECURE Act 2.0, seeks to build on the SECURE Act’s momentum.
SECURE 2.0 received strong bipartisan support in the U.S. House of Representatives, passing by a wide 414 to 5 margin. It now moves on to the Senate, which has its own retirement legislation on the docket. That bill, introduced by Senators Ben Cardin (D-MD) and Rob Portman (R-OH), has been dubbed the Portman-Cardin bill and shares several provisions with the SECURE Act 2.0.
While the SECURE Act 2.0 is one step closer to becoming law, it still has a long road to walk, and it is likely that enactment may be pushed back toward the end of 2022 or even into 2023. In the meantime, financial professionals may want to review SECURE 2.0’s provisions and help clients prepare for potential changes.
There are more than 50 provisions in the SECURE Act 2.0 legislation, and if passed by the Senate in its current form, it would include the following broad categories:
Despite the enhancements, SECURE 2.0 actually raises revenue, largely through the expansion of Roth savings. Starting in 2023, all catch-up contributions made to 401(k) or 403(b) plans would have to be made to Roth accounts. Traditional IRA and SIMPLE IRA plans are exempt from this rule. In addition, employers could permit employees to elect to treat employer-matching contributions as Roth contributions.
Similar to the original SECURE Act, some of these provisions would be effective immediately upon enactment, while others have a longer lead time before going into effect.
The Portman-Cardin bill in the Senate overlaps in most respects with SECURE 2.0 but includes a handful of additional provisions, including a new automatic enrollment safe harbor for “Secure Deferral Arrangements” that provide for stretch matching contributions. The concept of “stretching the match” essentially requires employees to contribute more to their retirement plans to receive the maximum employer contribution — for example: 100% on first 2%; 50% on next 4%; and 20% on next 6%. People call it stretch because it’s meant to be the same employer cost as other safe harbor matches but stretched to higher deferral levels, up to 10%.
In addition, the Senate is working on other retirement legislation that may be folded into SECURE 2.0, with a particular focus on addressing the fact that many working Americans do not have sufficient emergency savings. One idea is for a new in-plan option that allows plan participants to build an emergency savings fund alongside their retirement savings; the new option would have separate contribution limits and investment limitations.
Saving for retirement consistently ranks among Americans’ top financial worries. The SECURE Act 2.0’s provisions provide much-need opportunities for workers to increase their retirement savings while giving retirees more flexibility to preserve their assets and create income for later in life — goals that are supported by both parties. Given such broad bipartisan support and the relative ease with which it passed through the House, SECURE 2.0 has a good chance of moving forward in the Senate.
While the timing of enactment is unclear, SECURE 2.0 is garnering enough attention in the press that clients may have questions. As a result, financial professionals may want to familiarize themselves with the bill’s proposed provisions to better help clients prepare for any potential changes.
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