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SECURE Act 2.0 Seeks to Boost Retirement Savings

Posted by Wende Wadsworth, CPA on May 12, 2021 12:05:59 PM

Piggy BanksLast October, new legislation titled Securing a Strong Retirement Act of 2020 was introduced in the House of Representatives. Commonly referred to as the SECURE Act 2.0, this legislation contains a number of provisions designed to increase retirement saving opportunities for Americans as well as ease plan administrative burdens for employers.

Here are a few of the main provisions of the legislation:

Auto-enrollment in 401(k), 403(b) and SIMPLE plans would become mandatory. Many studies have shown that auto-enrollment increases plan participation rates because many employees do not opt out of the plan after they’re automatically enrolled. Currently, 69% of retirement plans feature auto-enrollment.

All new plans except those offered by businesses with 10 or fewer employees and those in business less than three years would be required to automatically enroll new employees at a minimum salary deferral rate of 3%. Auto-escalation of 1% of compensation per year up to a maximum of 10% would also be required.

The rules for taking required minimum distributions from retirement plans would be relaxed. The age for taking RMDs from traditional IRAs would be raised from 72 to 75. Also, individuals with IRA and employer retirement plan (not counting defined benefit plans) balances of less than $100,000 wouldn’t have to take RMDs at all.

The catch-up retirement plan contribution limit would be raised. Once they reach age 60, 401(k) and 403(b) plan participants would be able to contribute an additional $10,000 over and above the normal annual plan limits, with annual cost-of-living adjustments.

Employer de minimus financial incentives for plan participation would be allowed. Currently, the only financial incentive employers can offer employees to participate in a retirement plan is a matching contribution. The legislation would allow employers to offer other financial rewards such as gift cards to incent employees to participate.

The Saver’s Credit would be amended. The current tiered structure for this credit would be replaced with a flat 50% credit for the amount of IRA and salary deferral contributions made by eligible individuals, while the maximum credit would be increased from $1,000 to $1,500 per person.

A new employer tax credit would be added. Businesses with fewer than 100 employees that establish a new retirement plan would receive a tax credit of up to $1,000 per employee to offset employer contributions. The credit would be phased out over five years.

On the plan administration side, the legislation would also relax certain retirement plan disclosure requirements, expand the IRS Employee Plans Compliance Resolution System (EPCRS) and change the requirements for recouping plan overpayments made to retirees by mistake. Conforming plan amendments could be made by the end of 2022.

We will update the progress of this legislation in future issues of Retirement Reporter.

Topics: Audit & Assurance, News

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