Almost Signed, Sealed & Delivered: SECURE 2.0 Act in Major Spending Bill

Bottom Line Up Front

• SECURE 2.0 Act, as part of the $1.7 trillion omnibus spending bill was passed by Congress on December 23, 2022
• Once enacted into law, the SECURE 2.0 Act will extend RMDs to later ages, increase catch-up contributions, and require auto-enrollment and escalation in new plans. 
• Congress approved the new bill, but it is still awaiting signature by the President as of the published date of this article (December 27, 2022).

Almost signed, sealed & delivered: SECURE 2.0 Act as part of the $1.7 trillion spending bill was passed by Congress on December 23, 2022. 

Just in time to avoid a shutdown, Congress passed a major spending package which includes the highly anticipated SECURE 2.0 Act. This retirement savings provision will increase Americans’ retirement savings, decrease the costs associated with withdrawals, and provide greater access to employer retirement plans. 

Earlier this year in March, the House of Representatives passed the Securing a Strong Retirement Act of 2022 in a 414-5 vote. There are roughly 100 provisions in the SECURE 2.0 Act designed to boost participation in employer-sponsored retirement plans. The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 is an update of the SECURE Act of 2019.

The Original SECURE Act of 2019

The original SECURE Act included important enhancements to retirement saving rules, including: 

• Raising the age for required minimum distributions (RMDs) from 70.5 to 72. The added flexibility of delaying your RMD allows you to retire later, let your investments grow a little longer, and potentially save you on taxes by being in a lower tax bracket come RMD time. 
• Encouraging small businesses to offer retirement plans by providing them with tax credits to establish and maintain a retirement plan. 
• Eliminating the “stretch” IRA which allowed non-spouse beneficiaries to stretch out the distribution of inherited IRAs over their lifetimes. Under the SECURE Act, non-spouse beneficiaries must generally distribute the entire balance within 10 years of the original account holder’s death. 
• Allowing 529 college savings plan holders to repay up to $10,000 per year in qualified student loan debt with their funds. 
• Allowing long-time, part-time workers to participate in 401(k) plans and other defined contribution plans. 

Key Provisions of the SECURE 2.0 Act

Keep in mind the SECURE 2.0 Act is part of the larger Omnibus year-end spending bill which was passed by Congress on December 23rd, 2022. It is currently waiting to be enacted into law by President Biden as of the date of this article, but the President has stated that as soon as it reaches his desk, he intends to sign it. 

Below are a few of the provisions included and should be considered as they could impact your own retirement savings and plans: 

Auto Enrollment and Escalation in 401(k) & 403(b) Plans

Prior to the new Act, employers had the option to auto-enroll their employees into the company-sponsored retirement plan, which means that they would be automatically signed up to participate in the plan unless they notify the employer that they don’t want to participate. 

Effective for plan years beginning after December 31, 2024, under the new SECURE 2.0 Act, employers sponsoring a new 401(k) or 403(b) plan would be required to automatically enroll new employees in the plans at an initial amount of at least 3% of compensation – unless the employee opts out. The contributions will be automatically increased by 1% each year until it reaches a maximum of at least 10% and no more than 15%. 

Existing 401(k) and 403(b) plans will not be impacted by this feature. 

Further Age Increase for RMDs

Beginning January 1st, 2023, the age for RMDs will increase to 73, and then again to age 75 on January 1, 2033. 
Check out how RMDs are calculated here.

Increased Catch-Up Limits

Currently, the annual catch-up contribution limit for 2023 is $7,500. SECURE 2.0 Act further increases the contribution amount for those ages 60, 61, 62, and 63 to $10,000 per year and is subject to inflation adjustments. 

It will also raise the extra $1,000 IRA catch-up contribution for those ages 50 and older, to account for inflation.

Student Loan Repayment Matching

Effective for plans beginning after December 31, 2023, employers will be able to match student loan repayments with a contribution to the employee’s retirement plan account. This provision was intended to help employees that are repaying their student loans and can’t afford to make a contribution to their retirement plan.

Long-Term Part-Time Employee Eligibility

SECURE 2.0 also reduces the length of time a part-time employee (who works at least 500 hours per year) would have to wait to become eligible for participation from three years to two years.

Retirement Savings Lost & Found Database

The Act creates a national online searchable database that will enable employers to find “missing” plan participants, and plan participants to find their benefits if they change jobs or the company moves or merges with another company.

The Omnibus Spending Bill: What’s Next?

The $1.7 trillion year-end spending bill, which the SECURE 2.0 Act is included in, was passed and is awaiting President Biden’s signature as of the published date on this article. 

President Biden released a statement from the White House after the bill’s passing, “The bill is good for our economy, our competitiveness, and our communities… This bill will advance cutting-edge research on cancer and other diseases through my ARPA-H initiative. It will put more cops on the beat, invest in community policing, and provide the highest funding level for the Violence Against Women Act in history. It will help us meet our sacred obligation to America’s veterans and deliver the promise of the PACT Act, my bipartisan legislation to expand health care benefits to veterans. It will provide additional assistance to Ukraine, another demonstration of our bipartisan support for Ukraine after President Zelenskyy’s visit. It will help communities recovering from devastating natural disasters get back on their feet. And, it’ll strengthen worker protections for pregnant women.” 

You can read the full statement here: Statement from President Joe Biden on Passage of the Bipartisan Year-End Omnibus

If you’d like to be the first to hear about updates regarding retirement legislation, you can subscribe to our bi-weekly newsletter up above.