As expected, the SECURE 2.0 Act of 2022 (SECURE 2.0), an extensive piece of legislation aimed at retirement plan reform, is included in the Consolidated Appropriations Act, 2023 (the Spending Bill).  The 4,000+ page, $1.7 trillion Spending Bill was released early morning on Tuesday, December 20, with a passage deadline of Friday, December 23.  If the deadline is not met, another continuing resolution must be passed to avoid a government shutdown.   

SECURE 2.0 includes over 100 provisions intended to expand coverage, increase retirement savings, and simplify and clarify retirement plan rules.  The retirement package is a consolidation of three bills – the Senate Health, Education, Labor and Pensions Committee’s Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act (the RISE & SHINE Act), the Senate Finance Committee’s Enhance America’s Retirement Now (EARN) Act, and the House Ways and Means Committee’s Securing a Strong Retirement Act (the only included bill without a creative acronym).

SECURE 2.0 is intended to build on the Setting Every Community Up for Retirement Enhancement Act of 2019 (the original SECURE Act).  The SECURE Act is the less expansive predecessor to SECURE 2.0, ushering in quieter revisions to retirement plan rules, such as raising the age of required minimum distributions (RMDs) and eliminating age limits for traditional IRA contributions.  Bolstered by the overwhelming bipartisan support of the SECURE Act, SECURE 2.0 makes even more aggressive changes to retirement plan governance, including key provisions such as:

• Mandatory automatic enrollment.  Effective for plan years beginning after December 31, 2024, new 401(k) and 403(b) plans would have to automatically enroll participants upon attaining eligibility.  The automatic deferrals would start at between 3% and 10% of compensation, increasing by 1% each year to a maximum of at least 10% but no more than 15% of compensation.

• Increased age for RMDs.  Participants are generally required to take retirement plan distributions upon attainment of a certain age.  Before the SECURE Act, the age for RMDs was 70.5.  The SECURE Act increased that age to 72.  SECURE 2.0 further increases the age to 73, beginning on January 1, 2023, and again to age 75 beginning on January 1, 2033.  In addition, SECURE 2.0 would reduce, and sometimes, eliminate altogether, the excise tax imposed on failing to take RMDs.

• Increase the catch-up limit.  The dollar amount that participants can elect to defer each year is capped at a statutory maximum.  Under current law, participants who age 50 or older may defer an additional amount over the statutory maximum, referred to as a “catch-up.”  Beginning in 2025, SECURE 2.0 would increase the catch-up amount by at least 50% for participants who are between the ages of 60 and 63.   

• Matching of student loan repayments. Effective for plan years beginning after December 31, 2023, employers could match student loan repayments as if the student loan repayments were deferrals.

• Small financial incentives for participation.  Employers could offer de minimis financial incentives, such as low-dollar gift cards, to boost participation in retirement plans.  The financial incentives cannot be purchased with plan assets.

• Emergency withdrawals.  SECURE 2.0 would permit penalty-free distributions for “unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses” up to $1,000.  Only one distribution would be permitted every three years, or one per year if the distribution is repaid within three years. SECURE 2.0 would also permit penalty-free withdrawals of small amounts for participants who need the funds in cases of domestic abuse or terminal illness.

• Automatic rollovers.  Under current law, plans can automatically distribute small accounts of less than $5,000 to former participants.  If the distribution is greater than $1,000, the plan must roll the account into an IRA.  Effective 12 months from enactment, SECURE 2.0 would permit the transfer of default IRAs into the participant’s new employer’s plan, unless the participant affirmatively elects to the contrary. SECURE 2.0 would also increase the limit for automatic rollovers from $5,000 to $7,000.

• Eligibility for long-term, part-time workers.   Under current law, employees with at least 1,000 hours of service in a 12-month period or 500 hours of service in a three-consecutive-year period must be eligible to participate in the employer’s qualified retirement plan.  SECURE 2.0 would reduce that three-year rule to two years, for plan years beginning after December 31, 2024. 

• Emergency savings accounts.  If provided by the terms of a plan, non-highly compensated employees could defer up to the lesser of 3% of compensation or $2,500 (post-tax) to an emergency savings account under the plan. 

• Lost and found.  SECURE 2.0 would create a national online searchable database to enable employers to locate “missing” plan participants, and plan participants to locate retirement funds. 

• Unenrolled employee notices.  SECURE 2.0 would eliminate the requirement to send certain notices to employees who have elected not to enroll in an employer’s retirement plan; provided, that the employees are provided with an annual reminder notice of eligibility to participate.

The Senate is expected to take up the Spending Bill on December 22.  Assuming passage in the Senate, the House will vote on December 23.  Because SECURE 2.0 essentially combines three previously proposed bills with heavy bipartisan support, it is unlikely extensive revisions to SECURE 2.0 will be necessary to pass the Spending Bill.  Whether other provisions of the Spending Bill will survive, however, is much less clear.  Final passage of the Spending Bill in some form or another is anticipated by the December 23 deadline.