Martin H. Simon
The halls of Congress work in mysterious ways. You always hear of bills with “bipartisan” support that seem to take forever to pass. The SECURE Act, signed into law by President Donald Trump on December 20, 2019, has led to many important changes for retirement savers.
Yet, you can trace the roots of this bipartisan legislation at least as far back as the Obama administration. While the SECURE Act was technically first introduced early in 2019, its germination began years before.
Given the popularity of this Act, it’s no surprise we hear talk of a sequel. Also not surprising, and in the best Hollywood tradition of creative dearth, Washington has given this legislative Part Deux the short-hand name of “SECURE Act 2.0.” You’ve likely already read dozens of stories over the past couple of years mentioning this follow-up Act.
And, like its predecessor, SECURE 2.0 has been trapped in a Godot-like Twilight Zone limbo. Despite passing with enormous bipartisan support in the House (414-5), a slightly different version has languished in the Senate.
With the mid-terms over, this may be about to change. Newly reelected Oregon Senator Ron Wyden, Chairman of the Senate Finance Committee, told reporters in a November 15, 2022 press conference he sees SECURE 2.0 being “part of the package that moves before the end of the year.”
Is this statement more of the same, or does it have some real meat this time? And, if SECURE 2.0 passes, what will it mean for retirement savers?
Brian Graff, CEO of the American Retirement Association (“ARA”) in Washington D.C., works with a team of over 70 professionals to expand and strengthen America’s retirement plan system. His organization includes over 35,000 individuals who represent both financial providers and retirement plan sponsors.
The ARA is one of 60 financial organizations that recently sent a letter to majority and minority leaders of both the House and the Senate urging them to pass SECURE 2.0 in the lame-duck session.
“SECURE 2.0 is comprehensive bipartisan retirement reform legislation that builds off of the success of the bipartisan SECURE 1.0 retirement legislation enacted in 2019,” says Graff. “SECURE 2.0 has many provisions designed to make it easier for smaller businesses to offer employees retirement plans, to ease administrative burdens on all plans, and to enhance the incentives for American workers to save for retirement. SECURE 2.0 is widely supported by business, retiree, and financial services organizations.”
Why might people remain suspect whether Washington actually passes SECURE 2.0? It’s understandable to believe that. However, the past may suggest how it gets done.
“Similar to how SECURE 1.0 passed in 2019, SECURE 2.0 is expected to be attached to ‘must pass’ legislation that would be passed on a mostly bipartisan basis during the current lame-duck legislative session before the end of the year,” says Graff. “Possible legislative vehicles include an omnibus budget reconciliation bill to fund the government for the current fiscal year or a separate tax and spending bill which would include an extension of certain tax credits like the child tax credit and funding for hurricane relief relating to the storms in Florida and Puerto Rico.”
Senator Wyden’s statement aside, you might wonder if other elected officials feel SECURE 2.0 deserves the same priority as other efforts.
“SECURE 2.0 is definitely in the short list of items to be included in ‘must-pass’ legislation during the lame-duck legislative session,” says Graff. “This has been confirmed by leaders of both parties in both the House and Senate. There is strong and widespread bipartisan support for this legislation. It passed the House with 414 votes, and it passed unanimously out of both the Senate Finance Committee and the Senate Health, Education, Labor, and Pension Committee, which amounts to 45 senators voting in favor of the bill. Consequently, we would rate the chance of passage to be in excess of 90 percent.”
It’s important to note that the bill passed in the House earlier this year doesn’t agree with the terms being discussed in the Senate.
“There are some differences between the House and Senate bills which is typical for comprehensive legislation like this,” says Graff. “Committee staff have been working since August to resolve these differences which have been mostly resolved. The few relatively minor remaking differences are expected to be resolved this week.”
Reconciliation notwithstanding, some aspects of SECURE 2.0 appear to be “sure things” (with slight modifications), and these can affect your retirement savings strategy. If you’ve already got a plan, the so-called “Roth Catch-up provision” may allow you to make up for lost time.
“Basically, all catch-up contributions will be required to be Roth after-tax contributions,” says Graff. “It is possible they may make an exception for employees making less than $100,000 per year, and that is still being negotiated. There is also a difference between the House and Senate on the effective date, but we are expecting they will make the provision effective for catch-up contributions beginning in 2024.”
If you own a company or are otherwise responsible for your company’s retirement plan, SECURE 2.0 might complicate your life. Possibly the most challenging proposal involves the part-time provision. If this is part of the final package, the exact details of its roll-out may complicate year-end planning for companies with retirement plans.
“This provision changes the requirement that part-time employees have to be allowed to save in the plan if they work for at least 500 hours during the year from three consecutive years to two,” says Graff. “We have had several conversations about the implementation challenges associated with this provision, and, at this point, we are confident it will not be effective until 2024.”
If you are having trouble saving because you aren’t saving enough in an existing plan or because your company currently doesn’t offer a plan, SECURE 2.0 is expected to provide two critical tools to boost your potential to save for retirement.
The first new initiative, called the “Starter K,” encourages new plan formation.
“The Starter K plan makes it easier for small business owners to provide a meaningful benefit to their workers; and when coupled with automatic enrollment, it provides a significant step toward closing not only the nation’s retirement opportunity coverage gap, but racial wealth gaps as well,” says Graff. “The aggregate impact of expanding access to these programs alongside the powerful financial incentives of the enhanced Saver’s Match is profound.”
The ARA says the Starter K will allow “over 19 million new American workers with access to the workplace-based retirement system.” The Starter K proposal currently includes startup tax credits for employers. The ARA also says this part of SECURE 2.0 can help close “an ‘opportunity gap’ particularly pronounced in the Black and Hispanic communities. Fortunately, data also shows that when moderate-income workers are automatically enrolled in a workplace retirement plan, there is no racial disparity in retirement savings participation, with roughly 80 percent of Black, Hispanic, and White Americans all participating in these programs – a key aspect of this new plan type.”
The innovation offered by SECURE 2.0 is the “Saver’s Match Program.” It may be the most significant aspect of the expected new law in terms of the number of people impacted.
“The expanded and enhanced Saver’s Match would both encourage saving and help moderate income earners build wealth by providing an immediate, meaningful return on personal retirement contributions,” says Graff.
In this new program, the federal government would provide a 50% matching retirement contribution up to $2,000 annually. ARA’s press release stated that this matching contribution would occur “regardless of tax liability” and that “over 108 million Americans would be eligible for the Saver’s Match that would be directly deposited into their retirement account.”
SECURE 2.0 certainly has the potential to have as great an impact on improving retirement savings as its predecessor. That being said, however, remember the “game changer” contained in the original SECURE Act—the PEP Plan—has yet to realize its full potential.
Still, as they say in the NHL, you miss every shot you don’t take. So, if the goal is to get more workers to save for retirement, Washington appears to be giving it a clear shot.
“Without question, the new Saver’s Match, along with the Starter K proposal and the enhanced business tax credits to cover the cost of start-up plans, will by far have the largest and broadest impact on the retirement savings of working Americans,” says Graff. “Together these provisions will create enhanced retirement savings incentives and for many moderate income Americans the first meaningful opportunity to save for retirement.”
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