Expanding the retirement saving opportunities available to American workers has been a Congressional priority for several years. The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 made several important changes to increase access to workplace retirement saving plans amongst other provisions. However, the arrival of the COVID-19 pandemic not only prevented workers from taking advantage of the new changes but forced them to reassess financial priorities. To rekindle interest in retirement savings, the Securing a Strong Retirement Act of 2021 (Act), was recently approved by the House Ways and Means Committee. Key provisions for SECURE Act 2021 include an increase in the RMD age to 75, new automatic enrollment rules, expanded catch-up contribution limits, new hardship distribution rules for 403b plans, and expanded tax incentives. To help clients, prospects, and others, Selden Fox has provided a summary of the key details below.
- Automatic Enrollment – The Act would require a mandatory auto-enrollment for new employees (when eligible) for any defined contribution plan started after 2021. Employers would be required to set up enrollments with a 3% pre-tax contribution limit of employee pay. The contribution amount would increase annually by 1% up to at least 10% but may not exceed 15%. Participants will still be able to opt out of automatic enrollment. Finally, small businesses with less than 10 employees, church, and governmental plans would be exempt from this provision.
- Expanded Part–Time Employee Participation – The SECURE Act of 2019 made important changes that created access to retirement plans for part-time employees under certain conditions. The new Act proposes reducing the eligibility waiting period to two years. This would allow part-time employees that have worked at least 500 hours per year for two years and have been with the same employer for two consecutive years to qualify.
- Required Minimum Distributions (RMD) – The Act proposes increasing the minimum age for taking RMDs to 75, reduces the penalty for not taking an RMD to 25 percent, and eliminates the RMD requirements for individuals with a retirement account balance of less than $100,000.
- Increase Catch Up Contribution Limits – To help create new saving opportunities for those nearing retirement, the Act calls for an increase in catch-up contribution limits. Currently, catch-up contributions can be made by employees who are 50 and older, limited to $6,500 for 2021. The Act calls for the introduction of a higher contribution limit, $10,000 per year, for participants between the ages of 62 and 64 starting in 2023.
- Expanded Qualified Charitable Distributions (QCDs) – The Act calls for a limit increase on QCDs from $100,000 to $130,000 per account owner and expands access beyond IRAs to include retirement plans. There would also be a modification that allows a one-time distribution to charities through charitable gift annuities and charitable remainder trusts.
- Student Loan Payments – Many younger workers are unable to commit to retirement savings because of student debt obligations. The Act creates the option for employers to make matching retirement plan contributions for participants making qualifying student loan payments. This will help to ensure savings can start even while student loans are being repaid.
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The SECURE Act 2.0 has the potential to offer new retirement saving opportunities and benefits across the board. While it is likely there will be changes as the Act goes through Congressional approval, this pending legislation does provide insight into the changes currently under consideration. If you have questions about the information outlined above or need assistance with a benefit plan audit or issue, Selden Fox can help. For additional information call us at 630.954.1400 or click here to contact us. We look forward to speaking with you soon.
