SECURE Act 2.0 Passes Committee

The House Ways and Means Committee unanimously approved the Securing a Strong Retirement Act of 2021 which means likely enactment when the next covid relief bill comes along.

Some detail on provisions of interest to me and my clients:

Section 102, Modification of credit for small employer pension plan startup costs. The three-year small business start-up credit is currently 50% of administrative costs, up to an annual cap of $5,000. Section 102 makes changes to the credit by increasing the startup credit from 50% to 100% for employers with up to 50 employees. Except in the case of defined benefit plans, an additional credit would be provided. The amount of the new credit generally would be a percentage of the amount contributed by the employer on behalf of employees, up to a per-employee cap of $1,000. This full additional credit would be limited to employers with 50 or fewer employees and phased out for employers with between 51 and 100 employees. The applicable percentage would be 100% in the first and second years, 75% in the third year, 50% in the fourth year, 25% in the fifth year – and no credit for tax years thereafter.

Section 105, Increase in age for required beginning date for mandatory distributions. Under current law, participants are generally required to begin taking distributions from their retirement plans at age 72. The policy behind this rule is to ensure that individuals spend their retirement savings during their lifetime and not use their retirement plans for estate planning purposes to transfer wealth to beneficiaries. The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act)1 generally increased the required minimum distribution age to 72. Section 105 increases the required minimum distribution age further to 73 starting on January 1, 2022 – and increases the age further to 74 starting on January 1, 2029 and 75 starting on January 1, 2032.

Section 107, Higher catch-up limit to apply at age 62, 63 and 64. Under current law, employees who have attained age 50 are permitted to make catch-up contributions under a retirement plan in excess of the otherwise applicable limits. The limit on catch-up contributions for 2021 is $6,500, except in the case of SIMPLE plans for which the limit is $3,000. Section 107 increases these limits to $10,000 and $5,000 (both indexed), respectively, for individuals who have attained ages 62, 63 and 64, but not age 65.

Section 113, Safe harbor for corrections of employee elective deferral failures. Under current law, employers, including small employers, that adopt a retirement plan with automatic enrollment and automatic escalation features could be subject to significant penalties if even honest mistakes are made. Section 113 would ease these concerns by allowing for a grace period to correct, without penalty, reasonable errors in administering these automatic enrollment and automatic escalation features. The errors must be corrected prior to 9 ½ months after the end of the plan year in which the mistakes were made.

Section 114, One-year reduction in period of service requirement for long-term, part-time workers. The SECURE Act requires employers to allow long-term, part-time workers to participate in their 401(k) plans. As women are more likely to work part-time than men, this provision is particularly important for women in the workforce. The SECURE Act provision provides that except in the case of collectively bargained plans, employers maintaining a 401(k) plan must have a dual eligibility requirement under which an employee must complete either a one year of service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes at least 500 hours of service. Section 114 reduces the three-year rule to two years. The section also provides that pre-2021 service is disregarded for vesting purposes, just as such service is disregarded for eligibility purposes under current law.

Section 301, Recovery of retirement plan overpayments. Sometimes retirees mistakenly receive more money than they are owed under their retirement plans. These mistakes cause problems when they occur over time, and plan fiduciaries later seek to recover the overpayments from unsuspecting retirees. When an overpayment has lasted for years, plans often compel retirees to repay the amount of the overpayment, plus interest, which can be substantial. Even small overpayment amounts can create a hardship for a retiree living on a fixed income. Section 301 would allow retirement plan fiduciaries the latitude to decide not to recoup overpayments that were mistakenly made to retirees. If plan fiduciaries choose to recoup overpayments, limitations and protections apply to safeguard innocent retirees. This protects both the benefits of future retirees and the benefits of current retirees. In addition, rollovers of the overpayments would remain valid, which is another important protection for participants.

Section 302, Reduction in excise tax on certain accumulations in qualified retirement plans. Section 302 reduces the penalty for failure to take required minimum distributions from 50 to 25 percent. If a failure to take a required minimum distribution from an IRA is corrected in a timely manner (as defined under the bill), the excise tax on the failure is further reduced from 25 percent to 10 percent.

Section 306, Retirement savings lost and found. Every year, thousands of people approach retirement but are unable to find and receive the benefits that they earned often because the company they worked for moved, changed its name, or merged with a different company. Similarly, every year there are employers around the country ready to pay benefits to retirees, but they are unable to find the retirees because the former employees changed their names or addresses. Section 306 creates a national, online, lost and found for Americans’ retirement plans. The section also directs the Department of Labor, in consultation with Treasury, to issue regulations on what plan fiduciaries need to do to satisfy their fiduciary duties in trying to find missing participants.

Section 307, Expansion of Employee Plans Compliance Resolution System. Because of the ever growing complexity of retirement plan administration, the legislation would expand the Employee Plans Compliance Resolution System (EPCRS) to (1) allow more types of errors to be corrected internally through self-correction, (2) apply to inadvertent IRA errors, and (3) exempt certain failures to make required minimum distributions from the otherwise applicable excise tax. For example, the bill would allow for correction of many plan loan errors through self-correction. These are a frequent area of error and it can be burdensome to go to the IRS to correct a single loan error.

Section 318, Reform of family attribution rule. Under the tax code, certain related businesses must be aggregated when performing the coverage and nondiscrimination tests. The aggregation rules are generally based on the degree of common ownership of the businesses. For example, if an individual owns 100% of two separate businesses, they must be aggregated for purposes of the tests. In determining the level of ownership in a business, the tax laws have certain attribution rules whereby an individual is deemed to own stock held by other individuals or entities. Section 318 would update two of the stock attribution rules.

Section 319, Amendments to increase benefit accruals under plan for previous plan year allowed until employer tax return due date. Section 201 of the SECURE Act permits an employer to adopt a new retirement plan by the due date of the employer’s tax return for the fiscal year in which the plan is effective. Current law, however, provides that plan amendments to an existing plan must generally be adopted by the last day of the plan year in which the amendment is effective. This precludes an employer from adding plan provisions that may be beneficial to participants. Section 319 amends these provisions to allow discretionary amendments that increase participants’ benefits to be adopted by the due date of the employer’s tax return.

Section 320, Retroactive first year elective deferrals for sole proprietors. Under the SECURE Act, an employer may establish a new 401(k) plan after the end of the taxable year, but before the employer’s tax filing date and treat the plan as having been established on the last day of the taxable year. Such plans may be funded by employer contributions up to the employer’s tax filing date. Section 320 allows these plans, when they are sponsored by sole proprietors or single-member LLCs, to receive employee contributions up to the date of the employee’s tax return filing date for the initial year.

Section 501, Provision relating to plan amendments. Section 501allows plan amendments made pursuant to this bill to be made by the end of 2023 (2025 in the case of governmental plans) as long as the plan operates in accordance with such amendments as of the effective date of a bill requirement or amendment. The bill also conforms the plan amendment dates under the SECURE Act, the CARES Act, and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 to these new dates (instead of 2022 and 2024).

Section 604, Optional treatment of employer matching contributions as Roth contributions. Under current law, plan sponsors are not permitted to provide employer matching contributions in their 401(k), 403(b) and governmental 457(b) plans on a Roth basis. Matching contributions must be on a pre-tax basis only. Section 604 allows defined contribution plans to provide participants with the option of receiving matching contributions on a Roth basis.

22 responses to this post.

  1. Posted by MJ on May 8, 2021 at 2:32 pm

    Are these homeless people fighting with each other or harassing innocent passers by? I saw some people strolling by with coffee??

    Venice Beach back in the day was never better. Lived out there for many years and it seems like a life time ago. Looks like San Francisco but beachfront living.

    I just read where people are literally pouring out of CA, now how they are getting their homes sold is again beyond me. Looks like the Gavin recall has a good shot?

    Yeah, sorry Rex, it’s not much better her in some places either 😦

    Reply

    • Posted by PS Drone on May 8, 2021 at 2:52 pm

      And the Dems look to CA as a model for what the USA should look like after they get all of their socialist schemes written into law. I think we need to break the USA into 2 or 3 separate countries. Right, Left and Center. The country is going down anyway.

      Reply

      • And the Dems look to CA as a model for what the USA should look like after they get all of their socialist schemes written into law.
        If SillyCon Valley was NOT here in CA the entire state would be BK. CA was saved by Big Tech. CA just lucked out that HP and Apple were the pioneering companies in Big Tech and they grew this region to what it is today. That boom, well it all started in the early 1990’s, the area did not go full blown insane until the early 1990’s. I almost went to Grad School at San Jose State in the late 1980’s and the living/housing costs there were no different than anywhere else in the Bay Area, except San Francisco itself. Today a 1 bedroom apartment in San Jose runs you $5K/month.

        Reply


    • LOL… Venice Beach is far worse today than at ANYTIME in the past. The old days are nothing like today, I have posted the pics of what the sidewalks look like behind the gym, and it is like that all over the entire Venice area….This is the back sidewalk behind the gym, standing on Sunset and looking down 3rd Ave, every square inch of sidewalk has a homeless tent on it … The thing is this area, back in the day never had a homeless problem, back then it was infested with street gangs, the street gangs are long gone, the area is now upscale, but the gangs have been replaced by homeless encampments… 🤮🤮🤮

      Reply

  2. Posted by MJ on May 9, 2021 at 6:25 am

    I do remember back in the day that San Fran did have it’s homeless problems, mainly in the Tenderloin district if memory serves? Homeless would either be shipped in there from other places or gravitate there because even back then people were providing food, shelter, services, etc
    Nob Hill used to be a great place. It seems homelessness is a huge problem everywhere even in less expensive cities. Maybe it is just a life that an individual chooses.

    Fond memories of Venice Beach, San Francisco, those were the days. Actually had a month long trip planned for good ole Callie right before pandemic. Obviously cancelled.

    How’s the wine country doing? Between the shut downs and wildfires, they must be hurting?

    Reply

    • Posted by E on May 9, 2021 at 9:14 am

      Drugs and mental illness are usually the only two reasons some one is homeless.

      Reply

      • Posted by MJF on May 9, 2021 at 11:42 am

        Most families try to cope with a loved one but it just gets impossible. That extreme behavior will break you if you don’t just send it away.

        Reply

      • Drugs and mental illness are usually the only two reasons some one is homeless.
        Maybe where YOU LIVE, but not CA. Drugs and mental illness are major factors, and do account for a large % of homeless, but it is FAR from the “only two reasons”. In CA low wages and high housing are the main drivers of homeless. The average cost of housing in the GHETTO is $800/month for a 1 bedroom apartment. In the SLUMS. The ONLY “middle class” jobs in CA today are Government jobs. There are almost NO middle class jobs in the private sector left here. You’re either making BIG bucks in tech, or professional service jobs like lawyer, accountant, doctor etc., or you’re making minimum wage, maybe $9-$10-$11-$12 hour with NO fringes of any kind. No healthcare, no dental, no retirement, no time off. All of the good paying jobs in the semi-skilled construction trades now pay close to minimum wage because of illegal immigration, they have been taken over by illegals willing to do the work for $5-$10/hour. In fact it is SO BAD that many ILLEGALS are going to the mid-west because they are now being undercut by INCOMING illegals willing to undercut them. CA has almost no private sector middle class left. 25% of this state lives in poverty, the others are barely paying rent living pay check to pay check. Thanks to our great leaders. TY Sleepy Joe!

        Reply

        • Posted by E on May 10, 2021 at 8:14 am

          Very few homeless people are employed or even collecting unemployment. Not saying it doesn’t happen. Often the folks going through a temporary jobless time or something similiar have either a Friend or more likely family who can help them out. Drugs addicts and mental illness wears heavy on family. In the case of the latter, it is often the person himself who cuts ties. Regardless of the reason, it is a big problem. No different in NYC right now. Often many of the homeless people unfortunately are unemployable. Drugs/ mental illness etc.

          Reply

          • Very few homeless people are employed or even collecting unemployment.
            As I said, that may be true in NJ, but not CA. A large % do have mental illness AND drugs issues, but many cannot find decent private sector jobs in CA, because there basically are NO decent, middle class private sector jobs in CA. There is a REASON that CA has the highest poverty rate in America.

            Reply

  3. Posted by geo8rge on May 10, 2021 at 8:46 am

    KBRA Releases Research – New Jersey Aims to Broaden Public Asset Contributions to Fund Pensions

    Kroll Bond Rating Agency (KBRA) releases research which discusses a proposed bill in the New Jersey legislature that would further enable the contribution of public sector assets such as water systems, toll roads, parking systems and other infrastructure to fund the pension liabilities of the state’s pension system.

    KBRA believes three issues could help determine the soundness of such programs:
    ▪ To be credit positive or credit neutral, an asset transfer program would typically be part of a well-considered, efficient, long-term plan, not simply to manage arbitrary financial ratios.
    ▪ Similarly, large public assets are important public resources that should be used to finance only long-term needs, not short-term budget imbalances.
    ▪ KBRA observes that public entities that do not also address the underlying deficits that led to the need to transfer public assets in the first instance (e.g., structural budget imbalances), are likely to see a recurrence of the problem, with the potential of a downward spiral.

    https://www.kbra.com/documents/press-release/36809/kbra-releases-research-new-jersey-aims-to-broaden-public-asset-contributions-to-fund-pensions

    Reply

    • Posted by geo8rge on May 10, 2021 at 8:52 am

      From the report, which is available from kroll by setting up a free account:

      Is This a Good Idea?

      In our earlier research, KBRA noted that the ability to use public assets to finance public needs can be a credit positive depending on how they are used. We identified three broad issues for such programs that are worth repeating in the current context:

      1. An asset transfer program would typically be part of a well-considered, efficient, long term plan. Contributing assets that are illiquid or that do not generate cash flow to pension funds may improve some arbitrary ratios, but in our opinion, these kinds of transfers are not likely to improve fundamental credit characteristics. Management could accomplish their goals by contributing assets that generate cash flow, and/or expected to appreciate and then can be liquidated in the future.

      2. Since the use of such an asset is a one-time, non-recurring event, we believe it is important that it be used to finance long-term needs such as infrastructure or unfunded pension liabilities. Such assets are important public resources, and any alternative use should be carefully analyzed with the long-term public interest and given paramount importance. Liquidating fixed assets to finance short-term or operating expenses would, in KBRA’s opinion, be problematic from a credit perspective.

      3. KBRA believes it is critical that public entities better manage the underlying imbalances that led to the underfunded problem in the first instance. For example, contributing assets to pension funds without pension reform that puts annual funding on a firmer footing will only lead to a recurrence of the deficits in the future.

      https://www.kbra.com/documents/report/48009/new-jersey-aims-to-broaden-public-asset-contributions-to-fund-pensions

      Reply

      • Posted by Tough Love on May 10, 2021 at 9:28 am

        Quoting ………….

        “For example, contributing assets to pension funds without pension reform that puts annual funding on a firmer footing will only lead to a recurrence of the deficits in the future.”

        Indeed, and for the future service of CURRENT (not just new) workers.

        Reply

        • Posted by E on May 10, 2021 at 10:09 am

          With the very notable exception of your pal with more than 25 years on already right friend? 😉

          Reply

  4. Posted by MJ on May 10, 2021 at 12:12 pm

    E, I really don’t know how you can not recognize the urgent need for significant pension and healthcare reform for
    for all public workers including police. I think due to the nature of the work, the police should have some lee way with the reforms
    but where should the cut off begin?
    Those with 20 years in? Those with 15 years in?

    The cut off has to be somewhere. You can’t base your whole argument on the fact that housing prices in NJ are in a bubble right now

    How high can taxes go? Nobody wants to hear that there will be cuts but nobody wants to hear a lot of things

    Nobody wants to consolidate, nobody wants to address the elephant in the room.

    IDK…….I guess as long as NJ can keep borrowing and/or getting Federal bail out money it can go on awhile longer

    Reply

  5. Posted by A on May 11, 2021 at 1:45 pm

    MJ,
    Are you talking specifically about NJ?

    Most other states are in a bad way (Google “global retirement crisis”), but not even close to New Jersey, Illinois, Kentucky, etc. For obvious reasons.

    For the majority of states, I think most pundits agree there is a pathway to sustainability, if action is taken soon. For the worst four or five states, it is said that you can’t invest your way out of the problem. You likely can’t ” reform” your way out either, if by reform you mean only pension reductions.

    I’m all for reform, even including –some– reductions, but ultimately, I see a bailout of some form for New Jersey, et al.

    The canaries in the coal mine.

    Reply

  6. Posted by A on May 11, 2021 at 2:29 pm

    Just for example…

    Alabama?

    I know nothing about it. Haven’t checked Pew to see how well funded it is (or isn’t). Haven’t checked Biggs to see how “generous” their pay and pensions are. I just now Googled it to see if they are controversial at all.

    Nada.

    Mainstream media and most pension related blogs are concentrated on the big five, grossly underfunded states because, as Mary Pat Campbell stated… “DON’T PAY THE BILLS…”

    California is often tossed in because it has –the highest– unfunded liability. Unsurprising, because it has by far the largest pension system in the nation. (6th and 11th largest in the world… CalPERS/CalSTRS)

    New York State is number 14 (2019).

    So, who cares about Alabama? It probably could desperately use –real– reform, like most states, to ensure sustainable pensions.

    What does that say about New Jersey?

    Quoting…
    “E, I really don’t know how you can not recognize the urgent need for significant pension and healthcare reform for
    for all public workers including police.”

    New Jersey needs urgent reform because of this…

    Do not blame excessive pensions in New Jersey. Do not blame even higher pensions in California and New York State.

    Or Alabama.

    Reply

  7. Posted by A on May 11, 2021 at 3:14 pm

     Tough Love says:

    11 March 2014 at 15:31

    For serious discussion consideration at your forum….

    I believe that way to much focus has been given to not adequately “funding” promised Public Sector pensions. Clearly the ROOT CAUSE of the problem is excessive pension “generosity”. There seems to be a serious lack of understanding that “funding” FOLLOWS “generosity”, and that very generous pensions are very costly and will always be difficult to fully fund (over the working careers of the employees).

    (The US Public Pension Funding Crisis (Online Forum)

    By David Larrabee, CFA
    ……………………………

    Donkey Odie

    Posted by A on February 5, 2021 at 2:51 am

    Just fund the damn pensions you one trick phony.©

    Reply

    • Posted by Tough Love on May 11, 2021 at 8:13 pm

      Stephen,

      I just read the quote (from me in 2014) that you pasted above. It was valid THEN, and is no less valid NOW.

      By the way, I located the article in which I posted that comment, and see a comment ….. from a Douglas47, that I’m all but certain is you …… and just like now, you responded trying to counter what I say (not matter how accurate).

      Reply

    • Posted by A on May 12, 2021 at 12:01 am

      I am ubiquitous. As I recall, I was not the only one who disagreed with what you had to say (not matter how accurate).

      Reply

      • Posted by Tough Love on May 12, 2021 at 12:15 am

        I googled one commentator who in particular disagreed with me.

        As expected (and like YOU), he was on the RECEIVING END of the Public Sector gravy train.

        Reply

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