Legislators will make a year-end push after the midterm elections to pass Secure 2.0, the most significant set of retirement reforms Congress has considered in several years.
Advocates hope the bill, which would raise the age of required minimum distributions and expand access to workplace 401(k) plans, among other provisions, will pass by the end of the year. But the results of the midterm elections could undermine the momentum of the legislation and delay the timetable.
Lawmakers have been working to finalize Secure 2.0, which builds on the 2019 Secure Act, and efforts are expected to ramp up after next Tuesday’s election. The name is a catch-all for three bills – one in the House of Representatives and two in the Senate – that are expected to be reconciled in a final bill. One of the key provisions would raise the age at which required minimum distributions are withdrawn from retirement accounts from 72 to 75, a move that would primarily affect the minority of retirees who can afford to wait to withdraw from their savings. This change would allow them to delay their withdrawals and the taxation of those withdrawals (although that’s not always the best strategy, according to pension experts).
The bill enjoys bipartisan support, with lawmakers on both sides of the aisle invested in tackling America’s retirement crisis. Still, his stint in the lame duck session is not a foregone conclusion, observers say. If Republicans win back one or both houses of Congress, the party can try to avoid pass any major policy changes before he assumes leadership in early January, observers say. On the other hand, some of the sponsors of the legislation are retiring, which could prompt lawmakers to push the bill past the finish line in 2022.
“It’s hard to predict what Congress will look like and what it will want to do after the election,” said Michael Kreps, co-chair of the retirement services practice at Groom Law Group.
If lawmakers agree on a deal, then Secure 2.0 should be added to another bill that must be voted on before the end of the year and overlap with the passage of this legislation. If that doesn’t happen, lawmakers could still pick up the bill in the new year, but that would take time as it would have to be reintroduced and go through the legislative process all over again. And that could take a back seat in this scenario for issues that have come to prominence in the election, Kreps said.
Proponents hope Secure 2.0 will pass by the end of the year and it won’t come to that.
“Yes, there is bureaucracy, that’s how DC works,” said Tonya Manning, chief actuary and head of the wealth management practice at benefits and pensions consultant Buck. “But at the end of the day, there are things that everyone can get on board with.”
Here are some of the main provisions of the legislation:
Raise the age at which people must make the required minimum distributions of their retirement accounts at 75 instead of 72. The House version of the bill would accomplish this gradually, raising the age to 73 on January 1, 2023; to 74 on Jan. 1, 2030, and 75 on Jan. 1, 2033. The Senate would raise the age all at once, to 75, effective Jan. 1, 2032.
Increase the catch-up contribution limit to 401(k) or similar plans to $10,000 from the current $6,500 ($7,500 in 2023). In the House bill, this would apply to people between the ages of 62 and 64, beginning with the 2024 tax year. The Senate version would increase the limit for people between the ages of 60 and 63, to beginning with tax year 2025.
Make after-tax catch-up contributions; the Senate version would allow savers with incomes below $100,000 to decide whether their catch-up contribution would be before or after tax.
Index the $1,000 catch-up contribution to Individual Retirement Accounts to inflation, beginning with the 2024 tax year (House bill) and tax years beginning after the law is enacted (Senate bill).
Require an employer with a 401(k) plan to allow part-time employees with at least 500 hours of service in two consecutive years to participate in the plan, beginning in 2023.
Expand tax credits for small employers who offer certain 401(k) plans.
Allow employees to earn employer contributions equivalent to their 401(k) by making student loan payments, beginning in 2023 (House) and 2024 (Senate).
Making changes to the Saver Credit, which allows certain low- and moderate-income savers a tax credit for contributing to their IRA; the Senate version would change it from a non-refundable credit paid in cash to a matching government credit that must be deposited into an IRA, beginning in 2027; the House version would simplify the credit by normalizing the rate based on income, effective for tax years after 2026.
Write to Elizabeth O’Brien at [email protected]