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SECURE Act: The Sequel

While I typically don’t write about proposed retirement plan legislation, since bills can take a long time to become law and provisions can change dramatically, I am making an exception for the latest piece of retirement plan legislation, which was introduced on October 27, 2020 by the chair of the House Ways and Means Committee and the ranking Republican on the Committee. These are the same people who brought us the SECURE Act, a law that managed to pass the House 417-3 last May and was signed into law last December, despite many (including me) predicting that it had no chance of becoming law in 2019!

Enough of my legislative prognostication skills - or lack thereof. The “Securing a Strong Retirement Act of 2020,” which I have dubbed “SECURE Act: The Sequel,” contains many provisions that I think will be tremendously helpful to retirement plan sponsors and participants. Here are some of them:

  • Auto-enrollment mandate — Automatic enrollment will now be a requirement. Okay, now that I have your attention, don’t panic if you are an existing plan sponsor and have not yet jumped on the auto-enrollment train. In the bill, newly established (not existing) plans will be required to automatically enroll participants at a minimum 3% deferral rate, auto-escalating to 10% over time. There will be exceptions for some new plans, including churches, governments, tiny employers (10 or fewer employees) and start-ups. In my opinion, this is an excellent legislative starting point for the best retirement plan feature since sliced bread!
  • Required Minimum Distribution (RMD) minimum age would increase (again) from 72 to 75 — The SECURE Act raised the age from 70½ (a confusing age that I always disliked) to 72, and “The Sequel” takes it one step further. Additionally, individuals with combined retirement plan/IRA balances totaling $100,000 or less would be exempt from the RMD requirements entirely.
  • Saver’s Credit enhancement — I have often referred to the Saver’s Credit as the Phantom Credit because almost no one can use it. While the provision is not a perfect fix (the credit will still be non-refundable), the bill will provide some people the chance to take advantage of the credit by increasing the income thresholds under which the credit can be claimed, as well as increasing the maximum credit amount from $1,000 to $1,500.
  • Collective Investment Trusts (CITs) for 403(b) plans — Currently, due to 403(b) investment restrictions, CITs are not available in the vast majority of 403(b) plans. This bill would remedy that situation, expanding investment flexibility for 403(b) plan sponsors.
  • An Age 60 Catch-Up provision, in addition to the current Age 50 Catch-Up — Currently, individuals who are age 50 or older are permitted to defer an extra $6,500 (indexed) into their 401(k), 403(b), or governmental 457(b) plan. Under this bill, that amount increases to $10,000 for those age 60 or older.

Of course, not everything about the bill is good — for example, it appears that the paper industry successfully lobbied to have a paper statement requirement included — however, all-in-all, it is a bill that most plan sponsors are likely to support.

Looking for more details? Check out all 132 pages of the bill here, or if you prefer to stay awake, this bill summary.

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Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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