Senate Finance Releases Its Version of SECURE 2.0

The Senate Finance Committee has released an outline of its version of proposed retirement reform on the heels of passage of the Rise & Shine Act out of the Senate Health, Education, Labor and Pension (HELP) committee last week. A summary of the Enhancing American Retirement Now (EARN) Act released by the committee provides a brief description of each provision.

The first section of the summary lists proposals related to “individual retirement” and include provisions that encourage participation and saving for retirement, such as

• An additional safe harbor option for employers that would require an automatic enrollment default of no less than six percent and a tiered match formula that would “stretch” to deferrals up to 10 percent of compensation
• Changes to the saver’s credit to provide for a matching contribution to be deposited to a taxpayer’s IRA or retirement plan rather than a credit refundable in cash, with adjusted phaseouts

The next section concerning “retirees” addresses retirement spending, for example

• Increasing the age for mandatory distributions to age 75
• Encouraging the availability of annuity options
• Creating a Retirement Savings Lost and Found under the Treasury, which would be required to maintain a database to assist participants with recovering lost benefits and hold participant account balances under the $1,000 cash-out level in an interest-bearing retirement account

Another section of the outline regarding “employer plans” is aimed at improving plan operation and compliance, and encouraging employer plan adoption – highlights include

• A credit for employers that adopt a modified safe harbor as mentioned above, not to exceed the match contributions made to non-highly compensated employees on the first two percent of employee deferral contributions, for the first five years of participation
• An increase in credit limitation from 50% of plan start-up costs to 75% of plan start-up costs if the employer has 25 or fewer employees
• A $500 re-enrollment credit for up to 3 years if a small employer adopts a re-enrollment feature that default enrolls employees into elective deferral contributions at least every 3 years

Several miscellaneous sections contain additional provisions including, but not limited to

• Expanding 403(b) plan offerings by allowing custodial accounts to participate in group trusts, and allowing 403(b) multiple employer plans
• Making certain technical modifications to the SECURE Act including limiting the repayment deadline for qualified birth or adoption distributions to 3 years
• Adding revenue provisions that would require catch-up contributions to be made on an after-tax Roth basis, permit an employee participating in a SIMPLE IRA to treat elective deferrals as after-tax Roth contributions, and permit participants in SIMPLE IRAs, SEPs, and defined contribution plans to have employer contributions treated as Roth

Bill text is not yet available, and effective dates vary depending on the provision. The Senate Finance committee has scheduled a markup hearing Wednesday. Although both Senate committees are working to advance comprehensive legislation, the HELP committee has focused primarily on labor provisions while the Finance committee is more focused on tax policy. The two committee bills are likely to be consolidated into one proposal for consideration by the Senate.