Secure Act 2.0 Passes in the House

Retirement savings legislation is one area lawmakers come together and show bipartisan support. The House passed the Securing a Strong Retirement Act of 2022 by a vote of 414 to 5 at the end of March. Also known as Secure Act 2.0, it aims to take measures from the SECURE Act a step further.

First introduced in 2021, major changes include increasing the RMD age from 72 to 75, requiring automatic enrollment for all 401(k) and 403(b) plans, and increasing catch-up contribution limits.

Required Minimum Distributions

Prior to the passing of the SECURE Act at end of 2019, RMDs began at age 70.5.  The age was raised to 72 starting in 2020.  The Secure Act 2.0 would create an RMD schedule for those who turn 72 after December 31, 2021, gradually increasing the age to 75. The RMD age would be raised as follows:

• Age 73 – for those who turn age 72 after December 31, 2021, and age 73 before January 1, 2029;
• Age 74 – for those who turn age 73 after December 31, 2028, and age 74 before January 1, 2032;
• Age 75 – for those who turn age 74 after December 31, 2031

Automatic Enrollment Mandatory

For plan years beginning after December 31, 2022, SECURE 2.0 would mandate automatic enrollment in 401(k) and 403(b) plans at the time an employee becomes eligible to participate in the plan. There would be an option to opt-out of participating. The auto-enrollment deferral rate would be at least 3% of an employee’s compensation, not to exceed 10%.

Automatically enrolling employees would increase the participation and retirement savings rates for many Americans. Almost half of adults have no retirement savings.  At the same time, plan administrators may find themselves with more on their plate, particularly if they have a high turnover rate. Employee eligibility may need to be adjusted accordingly.

Catch-up Contribution Increase

For tax years starting after December 31, 2023, the catch-up contribution limit would increase to $10,000 per year (currently at $6,500) for eligible workplace retirement plan participants who have reached ages 62 to 64 by the end of the applicable tax year. The increase would apply to all plans except for SIMPLE Plans, which would be set at $5,000.

The catch-up limit for IRAs is $1,000 for those over age 50.  The catch-up limit would be indexed based on cost-of-living adjustments starting after 2023.

What is Next?

The Senate is expected to introduce their own version of the “Secure Act 2.0” later this year. The hope is Congress will vote on a final measure before the end of 2022.