On March 29, by a vote of 414 to 5, the U.S. House of Representatives voted in favor of the Securing a Strong Retirement Act of 2022 (SECURE Act 2.0). Now, the legislation heads to the Senate. That means it’s closer to becoming law, and changes could be in the not-too-distance future for retirement plans.
SECURE Act 2.0 builds on the first SECURE Act which passed in December 2019. As it is now, SECURE Act 2.0 is offering employees some favorable benefits. But remember, the Senate still must approve it and has its own version. So, even more changes may come after this.
Important SECURE Act 2.0 changes
What you need to know now is that:
- Employers would be required to automatically enroll eligible workers in 401(k) plans at a pretax contribution level of 3%. The contribution level would increase annually by 1% until 10% of the employee’s pay is contributed, but not more than 15%. There would be an option for employees to opt out or select a different percentage. Note: This requirement excludes businesses with 10 or fewer employees, or that are less than three years old. It also excludes church and government plans.
- Changes would be made to the amount plan participants could contribute if they’re nearing retirement. In 2023, plan participants 62 through 64, would be able to make a catch-up contribution of $10,000. Currently, it’s $6,500.
- Over the next 10 years, the starting age, which is currently 72, would increase for required minimum distributions: 73 years old in 2022, 74 years old in 2029 and 75 years old in 2032.
- Employers would be allowed to match student loan payments as contributions to retirement for employees with student loans. This would help employees with student loans, who can’t afford to participate in 401(k) plans due to their loan payments, to do so. This option could benefit employers too, as it might help them pass the 401(k) plan anti-discrimination annual test.
- The original SECURE Act granted long-term, part-time workers eligibility for their employer’s retirement plan after three years of service. SECURE Act 2.0 shortens it to two years.