Get Ready for New Retirement Laws

New legislation would help those who haven’t saved enough for retirement and expand access to retirement plans for more Americans.
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No matter who said it first, they had it wrong. Three things are certain, not two: death, taxes, and changes to retirement laws.

That’s right. Lawmakers are fast at work trying to help improve the retirement security of millions of Americans.

In late May, Senators Rob Portman, R-Ohio, and Ben Cardin, D-Md., reintroduced their Retirement Security and Savings Act (S. 1770). According to the National Association for Plan Advisors (NAPA), this bill (nicknamed RESA), which includes more than 50 provisions, would:

  • Allow people who have saved too little to set more aside for their retirement;
  • Help small businesses offer 401(k)s and other retirement plans;
  • Expand access to retirement savings plans for low-income Americans without coverage; and
  • Provide more certainty and flexibility during Americans’ retirement years.

That bill follows on the heels of the House Ways and Means Committee approving in early May the Securing a Strong Retirement Act of 2021, or SECURE 2.0. That bill, the first version of which was introduced last year, now contains some 45 provisions, according to the National Association of Plan Advisors. Most of the provisions contained in the earlier version of the bill are in the new one but there are some changes and new additions, according to NAPA.

Here’s a list of provisions in SECURE 2.0. And here’s a review of the provisions from Jeffrey Levine, chief planning officer at Buckingham Wealth Partners. According to Kitces.com, the key provisions include:

  • The RMD age would be pushed back from age 72 to age 75, implemented gradually over the next decade (age 73 starting in 2022, age 74 starting in 2028, and age 75 starting in 2030);
  • A change to the statute of limitations on missed RMDs to start the clock once a tax return is filed, and the penalty for a missed RMD would be reduced from 50% to 25% (and down to 10% for 'timely corrected' missed RMDs);
  • Catch-up contributions for IRAs would become indexed for inflation, with the introduction of an 'extra' catch-up contribution for employer retirement plans for those aged 62-64 (boosting catch-up contributions from $6,500 to $10,000 in 401(k) plans and from $3,000 to $5,000 for SIMPLE IRAs);
  • Going forward, all catch-up contributions would be required to be made to Roth-style accounts;
  • Qualified charitable contributions would be altered to index the $100,000 annual limit for inflation, and allow a once-in-a-lifetime QCD of up to $50,000 to a split-interest entity but only if the entity is solely funded via a QCD;
  • "Qualified Student Loan Payments" where 401(k) matching contributions are made for those who pay down student loans would be formalized in the Internal Revenue Code
  • And a new "Office of Retirement Savings Lost and Found" will be formed to help retirement plan participants track down lost retirement accounts.

Also, NAPA reported that Sen. Ron Wyden, D-Ore., chairman of the Senate Finance Committee, has not yet released a comprehensive retirement bill, but it is anticipated that he will do so in the coming weeks, perhaps this fall, suggesting that the House and Senate may be working on parallel tracks.

According to experts, some version of RESA, SECURE Act 2.0 and/or Wyden’s bill has a good chance of becoming law later this year. “I do expect there to be movement,” Levine said in an interview. “I wouldn't be surprised if we saw it before the end of the year.”

What’s more, there is widespread bipartisan support for retirement legislation. “Overall, the ‘SECURE 2.0’ legislation is a good example that bipartisanship still exists and that there's a willingness to continue to improve public policy that help people both save for retirement and have a more secure retirement,” said Jason Fichtner, the chief economist at the Bipartisan Policy Center.

The big question though is how much of the various bills will be included in the final.

Provisions that could become the law of the land, according to Levine, include those that move the RMD back for certain account owners, increasing the catch-up contributions, and indexing the catch-up contribution amounts for IRAs.

Establishing a statute of limitations on missed RMDs would also have a “major impact” on individuals today, said Levine.

Fichtner is concerned about the push towards "Rothification" where contributions to retirement plans would have to be made on an after-tax basis. “If I understand the current draft of the bill correctly, those age 50 and over that elect to make catch-up contributions to their retirement plans will be forced to make them on a Roth basis,” he said. “This provision was included as a pay-for to offset some other provisions in the bill that cost money up front. But a Roth-style contribution still ends up costing the government money -- just years later outside the 10-year budget window Congress uses to score legislation.”

According to Fichtner, Roth contributions just shift when taxes are paid to the government and, in the long-run, Roth contributions might end up costing the government more money, as the government doesn't get the benefit of the built-up compounding of assets as it does with traditional pre-tax contributions that are then taxed upon withdrawal.

Another provision, however, the auto-enrollment provision with a 3% default contribution rate, along with auto-escalation, is an excellent idea, said Fichtner.

SECURE 2.0 would also eliminate certain barriers to offering lifetime income annuities as a retirement plan investment option, he said.

And lastly, Fichtner noted, the bill would increase the age at which required minimum distributions (RMDs) from 72 to 75. It was recently increased from 70½ to 72.

Another provision would eliminate RMDs completely for those with account balances below $100,000. “I'm generally in favor of these provisions as RMDs can be confusing to many people,” Fichtner said. “Do they send a signal about how much you should adequately be spending down your retirement accounts? Are they just a way for the government to collect tax revenue? Why force people to sell in a down market?”