SECURE 2.0 Bill Contains Popular and Widely Anticipated Retirement Reforms

Updated with clarification

The widely anticipated legislation known as SECURE 2.0 was attached to the omnibus spending package released by the Senate Appropriations Committee on Tuesday. The bill does not contain any huge surprises for those following its three component bills through Congress, and its most popular provisions survived intact into the final bill.

The spending bill must now be passed by both the Senate and the House of Representatives and then signed by President Joe Biden for the federal government to be funded for fiscal year 2023, through September 30, 2023, and SECURE 2.0 to be law.

Among other items, the final version of SECURE 2.0 would do the following:

1. Auto-enrollment and escalation: New 401(k) and 403(b) plans would have to start enrolling participants with a salary deferral of at least 3% of salary, no higher than 10%, and escalate at 1% per year of service up to a minimum of 10% and maximum of 15%. An employee can opt out of the auto-enrollment and escalation. Small businesses, new businesses and church and government plans are exempted from this provision.
2. Increased tax credits for low-income savers: Starting in 2027, low-income savers could receive a tax credit of 50% of their retirement contributions, up to $2,000.
3. 403(b) Improvements: 403(b) plans could participate in multiple and pooled employer plans. Permission to use CITs was included in an early House bill but was not included in the final measure.
4. Required Minimum Distributions: The age for required minimum distributions is 72. It would be increased to 73 in 2023 and 75 in 2033.
5. Catch-up Contributions: For those aged 60 through 63, catch-up contribution maximums would be increased to $10,000 or 150% of the regular catch-up amount for those aged 50 and older, whichever is greater.
6. Student Loan Matching: Starting in 2024, employers could match student loan payments with plan contributions. The provision would not be limited to governmental debt and could be applied to any loan taken for higher education expenses.
7. Emergency Savings: Participants would be permitted to withdraw up to $1,000 in one withdrawal per year without an early-withdrawal tax penalty. They would have the option to repay this amount in three years and could not withdraw in this fashion again for three years unless the earlier withdrawal has been repaid. Employers could also offer a retirement plan-linked emergency savings account that would allow four penalty-free withdrawals per year. Employees could contribute a maximum of $2,500 to such an account.
8. Hardship Withdrawals: Participants could withdraw up to $22,000 to pay for expenses related to a natural disaster, which would be taxed as gross income over three years without additional penalty. Survivors of domestic abuse could also withdraw the lesser of $10,000 or 50% of their retirement account without penalty upon self-certifying as a survivor of domestic abuse.
9. Lost and Found: The Department of Labor would have two years to create an online database of plans so that employees and employers could find missing retirement accounts and match them to their corresponding sponsor and participant.
10. College-Savings Account Rollover: Leftover 529 account savings could be rolled over into a Roth IRA without penalty, provided the rollover amounts fall within IRA limits and the 529 is at least 15 years old.
11. Part-time employees: Part-timers would have to be enrolled in their employer’s 401(k) after two years, instead of the current three.
12. Auto-portability: A plan provider could transfer a participant’s retirement savings from a previous employer to their new one, unless the participant elects otherwise.
13. Qualified Longevity Annuity Contracts. Under current rules, the lesser of 25% of a retirement account or $135,000 can be allocated to a QLAC. Under SECURE 2.0, the 25% consideration would be repealed and the cap raised to $200,000. The bill also clarifies that QLACs with spousal survivor rights can still be paid in case of divorce.