After waiting for nearly a year, legislation that builds off the original SECURE Act and is supported by the American Retirement Association was approved March 29 by the House of Representatives.
The Securing a Strong Retirement Act of 2022 (H.R. 2954)—a.k.a. SECURE Act 2.0—was approved by a 414-5 margin. The bill had such strong bipartisan support that it was approved via the House Suspension Calendar, which requires a two-thirds majority for approval.
The House Ways and Means Committee had approved the legislation in May 2021 on a unanimous voice vote. A number of provisions have been added (see below) and various changes have been made to the existing provisions—including, among other things, updating the effective dates.
The Committee’s debate over H.R. 2954 featured a colloquy between House Education and Labor Committee Chair Bobby Scott (D-VA) and the Committee’s Ranking Republican, Virginia Foxx (R-NC), discussing concern around a provision requiring at least one quarterly benefit statement to be delivered on paper per year, unless the participant opts out of the paper requirement.
In the exchange, Foxx noted that while she supports the bill, she has “serious concerns about this blunt provision,” which she noted would undermine DOL’s 2002 and 2020 e-delivery safe harbor regulations that participants and plans have been relying on for nearly 20 years. “I do not consider this a settled matter, and I will continue to engage with my House and Senate colleagues to find a workable solution that simplifies and modernizes the disclosure requirements for retirement plans,” Foxx told Scott.
In response, Scott advised that it was his understanding that “staff will continue their efforts along with their Senate counterparts to try to find a path forward on this issue that balances the interests of plan sponsors and retirement plan participants.”
What’s in the Bill?
There are more than 50 provisions in the SECURE Act 2.0 legislation, including:
- increasing the small employer pension plan start-up credit to cover 100% of the cost to small employers to implement a 401(k) plan for the first three years;
- creating an additional new credit to encourage small employers to make direct contributions to their 401(k) plan for their employees, offsetting up to $1,000 of these employer contributions for each participating employee;
- expanding automatic enrollment in 401(k) plans by requiring 401(k), 403(b) and SIMPLE plans to automatically enroll participants in the plans upon becoming eligible, with the ability for employees to opt out of coverage;
- reforming the family attribution rules by modernizing the current tax law that penalizes small businesses in community property states and disproportionately affects women business owners;
- giving employers more time to adopt beneficial discretionary retirement plan amendments up until the due date of the employer’s tax return;
- broadening the scope of the SECURE Act’s pooled employer plan or open multiple employer plan provisions to allow unrelated public education and other non-profit employers to join a single 403(b) plan;
- providing a safe harbor for corrections of employee elective deferral failures;
- increasing the age for required beginning date for required minimum distributions (RMDs); and
- treating student loan payments as elective deferrals for purposes of making contributions.
As noted above, H.R. 2954 includes some new changes that were not in the version approved by the Ways and Means Committee in May 2021. In fact, during the Committee’s markup in May 2021, some Committee members, including Ranking Republican Kevin Brady (TX), expressed hope that provisions dropped from the October 2020 bill—including ones to expand the Saver’s Credit and defer tax for certain sales of employer stock to ESOPs sponsored by S corporations—would be addressed in future legislation. Modified versions of those changes have been added back, along with new provisions discussed below.
Pooled Employer Plans Modification (Section 109): In this case, the bill amends Section 3(43)(B)(ii) of ERISA to clarifies that a PEP may designate a named fiduciary (other than an employer in the plan) to collect contributions to the plan. Such fiduciary would be required to implement written contribution collection procedures that are “reasonable, diligent and systematic.” This change would apply to plan years beginning after Dec. 31, 2022.
Enhancement of the Saver’s Credit (Section 104): In addition to the existing provision that calls for the better promotion of the credit, the amended version of the legislation provides a boost to the Saver’s Credit by creating a single credit rate of 50%, instead of the tiered structure under current law. The bill also increases the adjusted gross income phaseout amounts and adjusts the limits for inflation. These changes would be effective tax years beginning after Dec. 31, 2026.
Deferral of Tax for Certain Sales of Employer Stock to ESOPs Sponsored by S Corporations (Section 117): The bill expands the gain deferral provisions of Code Section 1042 to include sales of employer stock to S corporation ESOPs with a 10% limit on the deferral. These changes would apply to sales after Dec. 31, 2027.
Certain securities treated as publicly traded in case of employee stock ownership plans (Section 118): To apply employer stock diversification rules to certain ESOPs, the legislation amends Code Section 401(a)(35) to specify that certain securities will be treated as publicly traded in the case of ESOPs. In particular, the provision allows certain non-exchange traded securities to qualify as “publicly traded employer securities” so long as the security is subject to priced quotations by at least four dealers on an SEC-regulated interdealer quotation system, is not a penny stock, nd is not issued by a shell company, and has a public float of at least 10% of outstanding shares.
Updating Dollar Limit for Mandatory Distributions (Section 307): Under current law, employers may transfer former employees’ retirement accounts from a workplace retirement plan into an IRA if their balances are between $1,000 and $5,000. Section 307 increases the limit from $5,000 to $7,000, effective for distributions made after Dec. 31, 2022.
Review of Pension Risk Transfer Interpretive Bulletin (Section 323): The bill also directs the Labor Secretary to review the fiduciary standards under ERISA when selecting an annuity provider for a defined benefit pension plan to determine whether amendments are warranted and report to Congress on the findings, including an assessment of any risk to participants.
H.R. 2954 now moves to the U.S. Senate, where similar legislation by Sens. Ben Cardin (D-MD) and Rob Portman (R-OH) has been introduced. In addition, Senate Finance Committee Chair Ron Wyden (D-OR) and Senate Health, Education, Labor and Pensions Committee Chair Patty Murray (D-WA) likely will also add their input on what goes into the final bill. In fact, the Senate HELP Committee on March 29 held a hearing on retirement security, at which Murray noted that she expects to act on retirement legislation later this spring.
Additional information on H.R. 2954 is available online: