SECURE Act Will Introduce Changes for Retirement Plan Sponsors

October 31, 2022

The Setting Every Community Up for Retirement Enhancement Act of 2019 sparked major changes affecting defined contribution and defined benefit plans, retirement services and providers of IRA and annuities. While these changes were deemed valuable, many believed there was still much to be done to support a secure retirement for working people. As a result, many additional retirement acts have since been presented by various government committees. If adopted, the new legislation will introduce additional significant changes for plan sponsors.

The EARN Act

One such act announced by the U.S. Senate Finance Committee is the EARN Act. This legislation would expand retirement plan access, as well as increase potential retirement savings, and simplify plan administration. It contains proposals that are similar to the Securing a Strong Retirement Act of 2021, which the U.S. House of Representatives passed on March 29, 2022, with broad bipartisan support.  Additionally the Retirement Improvement and Savings Enhancement to Supplement Healthy Investment for the Nest Egg of 2022, also known as the RISE & SHINE Act, wasapproved unanimously by the U.S. Senate Health, Education, Labor and Pensions (HELP) Committee on June 14, 2022. This legislation provides additional protections for retirement savings. 

Anticipated Changes to New Retirement Legislation

Among the key provisions of SECURE Act 2.0, which most believe has a 70% chance of Congress passing by the end of the year, would include the following changes affecting large plan sponsors and IRA providers:

  • New alternate method of satisfying nondiscrimination testing for 401(k) plans which would automatically enroll employees and would result in higher default contributions,
  • Expanded retirement savings opportunities for employees making student loan payments,
  • Increasing catch-up limits for plan participants at age 60,
  • Indexing of IRA catch-up limit,
  • Addition of penalty-free withdrawals to cover emergency expenses,
  • Addition of penalty-free withdrawals for domestic abuse survivors,
  • Addition of penalty-free withdrawals for terminally ill individuals,
  • Addition of permanent rules for the use of retirement funds in the case of federally declared disasters, and
  • Allowing retirement plans to make penalty-free distributions to pay certain long-term care insurance contracts.

Plan sponsors are urged to stay abreast of the SECURE Act 2.0’s status and then work with their third party administrator or other professional advisors to ensure they fully understand its ramifications for them and their plan members.