SECURE Act 2.0 Passed Unanimously by Ways and Means Committee

The Ways and Means Committee of the U.S. House of Representatives voted unanimously Wednesday afternoon to advance the Securing a Strong Retirement Act for future consideration by the full chamber.

Led by Ways and Means Committee Chairman Richard Neal, D-Massachusetts, and Ranking Member Kevin Brady, R-Texas, the committee members spoke one after another in praise of the legislation, which they refer to as the “SECURE Act 2.0,” a reference to 2019’s Setting Every Community Up for Retirement Enhancement (SECURE) Act. They used words such as “joy” and “delight” to describe their feelings about the advancement of the bill, which has been the recipient of significant support from all facets of the retirement planning industry.

As summarized by the lawmakers, the legislation will enable millions more workers to build savings through employer-provided retirement plans. A key feature is an automatic enrollment provision for new retirement plans. Auto-enrollment is a proven method for increasing worker participation. Employees who are automatically enrolled can opt out at any time. The bill also increases a tax credit for small business owners to encourage them to offer their employees a retirement plan.

Stakeholders in the financial services industry immediately praised the bill’s committee passage, and they called on the full House of Representatives to vote on the measure and send it to the Senate, where it also enjoys significant bipartisan support. Like the industry groups, many of the committee members took time to personally thank Neal and Brady for their lasting leadership on these topics, crediting the pair for first getting the SECURE Act passed and for now making significant progress on the follow-up bill.

“We are encouraged to see that ensuring all Americans have the resources they need for a successful retirement is a priority among lawmakers, and we strongly urge Congress to advance the SECURE 2.0 legislation forward,” said Heather Lavallee, CEO of wealth solutions for Voya Financial.

Lavallee noted how the impact of COVID-19 created even greater challenges for retirement savings efforts, for both individuals and companies alike.

“As we saw with the overwhelming bipartisan support of SECURE in 2019, this new legislation is something that almost all of us can agree on, and that is the importance of financial security,” added Charlie Nelson, vice chairman and chief growth officer, Voya Financial.

Aliya Robinson, senior vice president of retirement and compensation policy at the The ERISA Industry Committee (ERIC), said her organization and its members believe the bill is an essential step to increasing the future retirement security of workers and retirees.

“Millions of Americans have had their finances negatively impacted during the pandemic,” she said. “ERIC appreciates that the bill recognizes the looming student loan debt crisis impacting retirement savings as well as the cost and compliance burdens imposed on pension and retirement plans operated by employers. We are encouraged that the bill also allows for more savings opportunities for plan participants, including expanding the required minimum distribution age and providing additional savings opportunities for those nearing retirement age.”

Robinson said ERIC will work with lawmakers to ensure plan participants are provided the most options for savings and burdensome reporting requirements do not impact plan sponsors.

Key provisions of the SECURE Act 2.0 include the following:

Section 101 – Requires 401(k) and 403(b) plans to automatically enroll participants in the plans upon becoming eligible and allows employees to opt out of coverage. The bill requires the initial auto-enrollment amount to be at least 3% but no more than 10%, and then each year that amount is increased by 1% until it reaches 10%. All current 401(k) and 403(b) plans are grandfathered into the new rule. There is an exception for small businesses with 10 or fewer employees, new businesses, church plans and governmental plans.

Section 102 – Modifies the credit for small employer pension plan startup costs. Among other changes, this section increases the startup credit from 50% to 100% for employers with up to 50 employees.

Section 103 – Promotion of the Saver’s Credit. This section directs the IRS to promote the Saver’s Credit to increase its use.

Section 104 – Enhances 403(b) plans in a variety of ways. This section permits 403(b) custodial accounts to invest in collective investment trusts (CITs). It also amends the securities laws to treat 403(b) plans like 401(a) plans with respect to their ability to invest in CITs, with certain requirements and exceptions.

Section 107 – Establishes higher catch-up limit to apply at age 62, 63 and 64. Under current law, employees who have attained age 50 are permitted to make catch-up contributions under a retirement plan in excess of the otherwise applicable limits. The limit on catch-up contributions for 2021 is $6,500, except in the case of SIMPLE [savings incentive match plan for employees] plans, for which the limit is $3,000. Section 107 increases these limits to $10,000 and $5,000 (both indexed), respectively, for individuals who have attained ages 62, 63 and 64, but not age 65.

Section 108 – Creates an opportunity to establish multiple employer 403(b) plans. This provision generally mirrors the approach to pooled plans established by the original SECURE Act, including relief from the “one bad apple rule” so that the violations of one employer do not affect the tax treatment of employees of compliant employers.

Section 109 – Treats student loan payments as elective deferrals for purposes of matching contributions. The section permits an employer to make matching contributions under a 401(k) plan, 403(b) plan or SIMPLE individual retirement account (IRA) with respect to “qualified student loan payments.” Qualified student loan payment is broadly defined under the bill as any indebtedness incurred by the employee solely to pay qualified higher education expenses of the employee.

Section 201 – Removes required minimum distribution (RMD) barriers for life annuities. The section eliminates certain barriers to the availability of life annuities in qualified plans and IRAs that arise under current law due to an actuarial test in the RMD regulations. The test is intended to limit tax deferral by precluding commercial annuities from providing payments that start out small and increase excessively over time. In operation, however, the test commonly prohibits many important guarantees that provide only modest benefit increases under life annuities.

Section 202 – Addresses issues relating to the minimum distribution rules which have impeded the use of qualified longevity annuity contracts (QLACs) in retirement plans and IRAs. Due to a lack of statutory authority to provide a full exemption, regulators have imposed certain limits that have prevented QLACs from achieving their intended purpose in providing longevity protection.

Section 307 – Expands the Employee Plans Compliance Resolution System (EPCRS). Because of the ever-growing complexity of retirement plan administration, the legislation would expand the EPCRS to (1) allow more types of errors to be corrected internally through self-correction, (2) apply to inadvertent IRA errors, and (3) exempt certain failures to make RMDs from the otherwise applicable excise tax. For example, the bill would allow for correction of many plan loan errors through self-correction. These are a frequent area of error and it can be burdensome to go to the IRS to correct a single loan error.