The Secure Act 2.0 (HR 2954 Securing a Strong Retirement) has passed in the House and is currently up for discussion in the Senate’s Committee on Finance.
If it becomes law, what will it mean for small business owners?
The Secure Act 2.0 could spell changes for employers, with changes how 401Ks are administered for full and part-time employees. It could also change how employers manage contribution for employees who owe student loans.
Secure Act 2.0 and Retirement Savings
The Secure Act 2.0 would also impact retirement plans for individuals, as it would increase the minimum age for required distributions and increase the retirement plan distribution limit.
Here are the details.
Changes to 401 (k)s
- Auto enrollment for employee contributions would be a given for employers to provide – unless the employee opts out. This requirement would not include businesses with fewer than 10 employees, or businesses which are less than 3 years in operation.
- Currently, part-time employees can participate in employer 401(k)s after they’ve been employed as part timers for 3 years. In the proposed legislation, the time period would be reduced to 2 years.
- If an employee is making payments against student loans, the employer can match the amount of the student loan payment as a contribution into the employee’s 401(k).
- The auto enrollment would require employers to contribute 3% of the employee’s annual income. The percentage could be increased annually with a limit of 10%.
Changes to 403 (b)s
- 403 (b)s are retirement plans used by employees of charities and public education organizations. Currently, 403 (b) investments are limited to annuity contracts and mutual funds. The proposed legislation would:
- Expand allowed investments to include collective investment trusts.
- 403 (b) plans could participate in MEPs (Multiple Employer Plans).
Boost Credits for Small Employer Pension Plans
For employers with up to 50 employees, the credit for start-up pension plans, currently at 50%, would be increased to 100%. The dollar amount of the credit would have a cap of $1,000 per employee.
Changes to Individual Retirement Plans
- The allowed amount for catch-up payments would be increased. Currently, individuals who are 62, 63 and 64 can contribute up to $6,500 annually to a retirement plan. That limit would be increased to $10,000.
- Simple Employee Pension plans (SEPS) and Simple IRAs could be designated as Roth IRAs. If so designated, contributions would NOT be excludable from income at tax time.
- Currently, the age when an individual must begin makes distributions from retirement accounts is 72. In 2022, that would be changed to 73. In 2029 the age would increase to 74 and in 2032 it would increase to 75.
Will the Secure Act 2.0 Become Law?
Support in the House was strong, with an overall vote of 414-5.
In both the House and the Senate, support for reform of the retirement system is strong.
However, there are similar proposals also under consideration in the Senate:
HR 5891 The Rise Act
S1770 Retirement Security and Savings Act
S1703 Improving Access to Retirement Savings
The Senate Committee can tweak or combine and will likely amend before the final version comes to the floor for a vote. However, a positive vote on some version of the legislation seems possible and probable this Spring.