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What’s new with retirement plans?

November 18, 2021

For more on this and other useful insights you can use with clients, check out the latest issue of Current from the Nationwide Retirement Institute.

Currently, there are two new pieces of proposed legislation that aim to build upon and strengthen the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. Collectively, these are being referred to in the popular press as “SECURE Act 2.0.” The House version of the proposed legislation is known as the Securing a Strong Retirement Act of 2021 and was introduced in the House on May 4, 2021, and referred to the House Ways and Means Committee on May 5, 2021, where it remains as of the date this article was authored. The Senate version of the proposed legislation is known as the Retirement Security and Savings Act of 2021 and was introduced in the Senate on May 20, 2021, and referred to the Senate Finance Committee, where it remains as of the date this article was authored. There is much common ground between the two pieces of competing legislation, but there are some items that are in only one version or the other. This proposed legislation is extensive, and not all of its provisions can be covered in the space allotted. Following are some highlights of the points addressed in the proposed legislation that plan sponsors and their financial professionals may find interesting.

Treatment of student loan payments as elective deferrals for purposes of matching contributions

There is identical language in both the House and Senate versions which may be summarized as follows: Employer contributions made on behalf of employees for “qualified student loan payments” are treated as matching contributions as long as certain requirements are satisfied.

This applies to 401(k)s, 403(b)s and SIMPLE IRAs, plus 457(b) plans. A plan may treat a qualified student loan payment as an elective deferral or an elective contribution (as applicable) for purposes of the matching contribution requirement under a basic safe harbor 401(k) plan or an automatic enrollment safe harbor 401(k) plan, as well as for purposes of the Section 401(m) safe harbors. Employers are permitted to apply the actual deferral percentage (ADP) test separately to employees who receive matching contributions on account of qualified student loan payments. This provision is scheduled to be effective for plan years beginning after December 31, 2021.

Expanding automatic enrollment in retirement plans

The House version (but not the Senate version) expands automatic enrollment and automatic escalation in new 401(k) and 403(b) plans by requiring that they include automatic enrollment with a default rate of between 3% and 10%, as well as automatic escalation of 1% per year up to a maximum of at least 10%, but no more than 15%. This provision would be effective for plan years beginning after December 31, 2022.

Modification of credit for small employer pension plan startup costs

Both the House and Senate versions increase the amount of tax credit available to a small employer for starting a new plan, but they disagree on the amount and the methodology. This provision would be effective for tax years beginning after December 31, 2021.

Enhancement of 403(b) plans

Both the House and Senate versions expand investment options available to 403(b) plans by amending the tax and securities laws to allow 403(b) plans with custodial accounts to invest in collective investment trusts (81-100 group trusts). This provision would be effective for amounts invested after December 31, 2021.

Increase in age for required beginning date of mandatory distributions

Both the House and Senate versions contain increases in the required minimum distribution (RMD) age from the current age 72 to a proposed age 75. The difference between the two versions is that the House version specifies incremental increases to age 73 beginning in 2022, 74 beginning in 2029, and 75 beginning in 2032. The Senate version increases the age to 75 in 2032 without the incremental steps.

Removing RMD barriers for life annuities

Both the House and Senate versions of the proposed legislation would amend the RMD rules that require all annuity payments to be nonincreasing or increase only following certain limited exceptions. These rules would be relaxed so as to permit commercial annuities that are issued in connection with any eligible retirement plan to provide additional types of payments, such as certain lump-sum payments and annual payment increases at a rate less than 5% annually. This provision would become effective upon enactment.

Permitting nonspousal beneficiaries to roll assets into plans

Current law allows nonspousal beneficiaries to roll assets into an inherited IRA but not into a qualified plan. The Senate version (but not the House version) would provide that a designated beneficiary other than a surviving spouse may directly roll assets into a qualified plan (including 403(a), 403(b) and governmental 457(b)). This change would be effective for distributions made after enactment.

Exception from required distributions where aggregate retirement savings do not exceed $100,000

Another provision, found only in the Senate version, states that employees with less than $100,000 in their eligible retirement accounts (in the aggregate) are not required to take RMDs during their lifetime. This does not apply to defined benefit plans. The provision would be effective for initial measurement dates on or after December 31, 2021.

The “SECURE Act 2.0” proposed legislation is much more extensive than what we have shared here. Should it be enacted, it will offer plan sponsors and their plan participants many opportunities and challenges in order to comply.

For questions regarding this legislation, you can contact the Advanced Consulting Group at ADVCG@nationwide.com.

Disclosure

  • This information is general in nature and is not intended to be tax, legal or other professional advice. Federal income tax laws are complex and subject to change. The information presented here is based on current interpretations of the law and is not guaranteed.

    Nationwide and its representatives do not give legal or tax advice. An attorney or tax advisor should be consulted for answers to specific questions.

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