More Changes Coming Soon to Retirement Savings
by Ashley N. Trotto, Esq. and Jordan Bondurant, Summer Associate
It is no surprise that America has a retirement savings problem. The SECURE Act, passed in late 2019, was the legislature’s most recent attempt at improving retirement savings opportunities for workers. Building on that momentum, the House recently passed the Securing a Strong Retirement Act (“SECURE 2.0”). In response, the Senate’s Health, Education, Labor, and Pensions Committee advanced the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act (‘‘RISE & SHINE Act’’) and the Senate’s Finance Committee advanced the Enhancing American Retirement Now Act (“EARN Act”).
Although there are differences between the House and Senate bills, there are significant areas of overlap. It is expected that a compromise bill will be passed later this year. The following summarizes a few key provisions included in both the House and Senate bills:
- RMD Commencement: the SECURE Act increased the Required Minimum Distribution (“RMD”) start date from age 70 ½ to age 72. The House would further increase to age 73 in 2023, 74 in 2030, and 75 in 2033 while the Senate would increase from age 72 to 75 in 2032.
- “Catch-up” Increase: currently, the “catch-up contribution” limit is $6,500 for individuals over age 50 participating in 401(k), 457(b), and 403(b) plans. The House would increase the limit to $10,000 for those aged 62-64 and the Senate would increase to $10,000 for those aged 60-63.
- Domestic Abuse Distribution: Both the House and Senate would permit penalty free distributions up to $10,000 for victims of domestic abuse.
- Long-Term Part Time Employees: The SECURE Act provides that part-time employees who work 500 hours for three consecutive years are eligible to participate in their employer’s 401(k) plan. Both the House and Senate would reduce that requirement to two consecutive years.
- De Minimis Incentives: Both the House and Senate would permit employers to provide a “de minimis” financial incentive to employees who elect to participate in a retirement plan. Unfortunately, neither the House nor the Senate has defined the term “de minimis.”
- Elimination of “First Day of the Month” Rule: Currently, governmental 457(b) plan participants must make deferral elections prior to the first day of the month for which the election relates. Both the House and Senate would revise the rule to require that deferral elections be made prior to the date the compensation which is the subject of the election is currently available.
- Employee Certification of Hardship: Both the House and Senate would permit an employer to rely on an employee’s certification that conditions for a hardship distribution have been satisfied.
- Expansion of EPCRS: Both the House and Senate propose significant expansion of the Employee Plans Compliance Resolution System (“EPCRS”), the IRS’s retirement plan correction program, including extension of correction periods, new safe harbor correction methods, and additional flexibility with respect to self-correction.