Take-Away: There is a pretty good chance that many of the provisions in HR 2954, aka the SECURE Act 2.0, will become law. The bill passed in the House of Representatives by a vote of 414 in favor and 5 against.

Background: Unlike most of the proposed legislation that Congress squabbles over these days, there normally seems to be a high level of bipartisan support for retirement plan legislation, especially legislation that is designed to encourage retirement savings, while also recognizing that more and more wealth is tied up in retirement accounts these days and may be needed in crisis situations.

Many of the SECURE Act 2.0 provisions were summarized in a couple of earlier missives. As the multi-page legislation is studied closer, other proposed law changes come to light, or the technical nature of some proposed changes become clearer. The previous summaries of the proposed SECURE Act 2.0  bill continues below, with some touched-on, and some additional, provisions.

Automatic Enrollment: Under the proposed bill, all 401(k) and 403(b) plans maintained by most employers, and multi-employer plans would automatically enroll eligible participants. This automatic enrollment provision would become effective starting in 2024. The presumed contribution rate starts at 3% and increases annually by 1%, stopping at 10%. New participants would have to formally opt out of their automatic enrollment. Excepted from these automatic enrollment rules would be small businesses with 10 or fewer employees, ‘new’ businesses that have been in existence for less than three years, and church and governmental plans.

403(b) Plans: Under the proposed bill 403(b) plans would now be allowed to participant in multiple-employer plans.

Qualified Longevity Annuities: The proposed bill would repeal the 25% limit with respect to qualifying longevity annuity contracts (QLACs) purchased or received in exchange in retirement accounts, which limits the participant’s exemption from taking required minimum distributions (RMDs) on the annuity amount. The proposed bill would also facilitate sales of QLACs with spousal survivor rights.

Exchange Traded Funds: The proposed bill would require Treasury to update its Regulations to clarify that exchange-traded funds (ETF’s) may be available through individual variable annuities.

50% RMD Penalty: The proposed bill would reduce the penalty for the failure to take an RMD from 50% to 25%. The bill would provide a further reduction, down to a 10% penalty, with respect to a failure to take an RMD that is corrected in a timely manner (timely being defined in the bill.)

Qualified Charitable Distribution: The proposed bill would allow a one-time election for a qualified charitable distribution (QCD) from a traditional IRA to be made to a split-interest entity. A distribution of up to $50,000 could be made directly to a charitable gift annuity (CGA), a charitable remainder unitrust (CRUT), or a charitable remainder annuity trust (CRAT.) In addition, the bill would index for inflation the current $100,000 annual limitation on QCDs from an individual’s traditional IRA.

Birth and Adoption Expense Recontributions: The proposed bill would amend the SECURE Act’s recontribution that allows for qualified birth and adoption distributions from a retirement account by limiting the recontribution period to three years. This change would be retroactive to December 31, 2019.

Self-Certified Hardship Distributions: The proposed bill would allow employers to rely on employee’s self-certification of an event that necessitated a hardship distribution. This change would be in-line with existing Regulations that currently permit employees to self-certify for such purposes that they ‘otherwise lack needed funds to address a hardship.’

403(b) Hardship Distributions: The rules for hardship distributions from 403(b) plans would be made consistent with the hardship distribution rules for 401(k) plans. All amounts would be available for hardship distributions, as opposed to, currently, only employee contributions (without earnings) being available for the hardship distribution.

Domestic Abuse Survivors: The proposed bill would permit penalty-free withdrawals by survivors of domestic abuse for specified- related reasons, which includes escaping an unsafe situation. The distribution of up to the lesser of $10,000 or 50% of the participant’s account would also be self-certified. In addition, a recontribution to the account could be made over a period of up to three years.

Student Loan Payments as Elective Deferrals: The proposed bill would permit an employer to make contributions under a 401(k) plan, a 403(b) plan, or a SIMPLE IRA with respect to qualified student loan payments. Governmental employers would also be permitted to make matching contributions in IRC 457(b) plans or another plan with respect to such repayments. This change is because some employees miss out on their employer’s matching contribution because they are paying off student loans. Under this proposal, student loan repayments by the employee would ‘count’ as elective deferrals, thus allowing the employer to make a matching contribution.

Military Spouses: The proposed bill creates small credit available to the plan sponsor for each non-highly compensated employee married to a member of the military who becomes a participant in a defined contribution plan. The plan must provide prompt eligibility for the military spouse and the benefits must be nonforfeitable and comparable to the benefits of other employees. The credit for each military spouse would be allowed for the year that the military spouse begins participation in the plan and the for the two succeeding years. The credit comes in two parts: $250 for the mere fact that the military spouse participates in the plan and a dollar-for-dollar credit for the first $250 that the employer contributes to the plan for the military spouse, not to exceed a credit of $1,500.

Catch-up Contributions Required to be Roth Contributions: This may become the most debated proposed change under SECURE Act 2.0. The proposed bill would provide that effective on January 1, 2023 all catch-up contributions made by participants to qualified retirement plans would be subject to Roth tax treatment.

Observation: Why must all catch-up contributions be subject to Roth tax treatment? The government needs tax revenues, now, not later. Roth contributions are subject to immediate income tax. This also explains why SECURE Act 2.0 proposes to extend Roth contributions to SIMPLE IRAs, along with allowing employers to offer employees the ability to treat employee and employer SEP-IRA contributions as Roth contributions, (in whole or in part.)

Conclusion: There is some early talk that this proposed bill might get ‘fast-tracked’ in the Senate. To my way of thinking (i.e. cynical) nothing happens fast in the Senate, unless its is confirmation of a Supreme Court nominee (depending what party nominated the candidate.) I guess there is still hope that much of the SECURE Act 2.0 will become law before Congress adjourns for the summer to go home and start campaigning in earnest for the fall elections.