Congress considers changes to retirement rules, including catch-up contributions


There is still a good chance that changes to the US retirement system will be enacted before the end of the year.

Although there are only a few months left before the next Congress convenes on January 3 – the midterm elections will take place on November 8 – the desire to improve the ability of Americans to save for their retirement is supported at the same time by Republicans and Democrats.

The proposals are collectively referred to as “Secure 2.0” – which is a nod to the Secure Act of 2019, whose provisions introduced major changes to the pension system for the first time since 2006.

“There’s still huge bipartisan interest in doing another retirement security bill,” said Paul Richman, director of government and policy affairs at the Insured Retirement Institute.

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“I think the opportunity for that to happen would be…after the midterm elections when [lawmakers] would do tax-related bills,” Richman said. “That would be the right place because most of the changes would affect the tax code.

Differences still need to be settled

The House has adopted its version of Secure 2.0, the Securing a Strong Retirement Act (HR2954)end of March with a bipartisan vote of 414-5.

In the Senate, the committees responsible for retirement provisions have already approved proposals that collectively form the basis of this chamber’s Secure 2.0 version: the Committee on Health, Education, Labor and Pensions has advanced the so-called Rise & Shine Law (S.4353) in June, and the Finance Committee in September approved a bill known as the EARN Law (S.4808).

Of course, the differences between the bill passed by the House and the Senate proposals would have to be resolved before a final package could be approved by both houses.

“Our understanding is that relevant committee staff have entered into discussions,” Richman said.

If Secure 2.0 does not become law by the end of 2022, the entire legislative process would have to start over with new proposals at a future Congress.

Here are some key provisions under consideration for Secure 2.0, some of which are the same or similar in the House and Senate Secure bills — and some that are not.

Leveraging 401(k) funds for emergencies

Two proposals in the Senate – approved by separate committees – deal with access to emergency funds.

One would allow employers to automatically enroll their workers in emergency savings accounts, at 3% of salary, which they could access at least once a month. Workers could save up to $2,500 in the account, and any overcontributions would be automatically paid into an account linked to the company’s 401(k) plan.

The other Senate proposal takes a different approach: It would allow workers to withdraw up to $1,000 from their 401(k) or individual retirement account to cover emergency expenses without having to pay the penalty. typical tax of 10% for early withdrawal if under age 59.5. .

We understand that the staff of the relevant committees have entered into discussions.

Paul Richmann

Director of Government and Policy Affairs of the Institute for Assured Pensions

Under House and Senate proposals, victims of recent domestic violence would also not be subject to the 10% penalty for withdrawing up to $10,000 or 50% of the account balance from their retirement savings. , whichever is lower.

Increase access to the savers’ tax credit

Under current legislation, many low- and middle-income workers are eligible for the so-called saver’s tax credit. It’s worth 50%, 20%, or 10%, depending on income, of contributions made to a business plan or IRA, for a maximum credit of $1,000, or $2,000 for married couples.

The credit is not available to taxpayers whose adjusted gross income is $34,000 or more ($68,000 for joint filers). It is also non-refundable, which means that if you owe zero tax, you get no refund of the credit value.

The bill passed by the House would increase the income threshold and increase the number of people eligible for the full credit.

The Senate provision is similar, but would also make the credit fully refundable and require the refund to be deposited into the worker’s retirement account – although amounts under $100 are sent directly to taxpayers.

Mandate automatic 401(k) enrollment for many

The bill that has been approved by the House would require employers to automatically enroll employees in their 401(k) plan at a rate of at least 3%, then increase it each year until the worker contributes 10% of his salary. Workers could opt out.

It excludes existing schemes, companies with 10 employees or less and companies less than three years old.

The Senate did not propose automatic registration.

Increase the catch-up contribution

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Currently, savers aged 50 or over can make so-called catch-up contributions to their retirement savings. In addition to standard annual contribution limits — $20,500 for 401(k) plans and $6,000 for Individual Retirement Accounts in 2022 — those who qualify can put an additional $6,500 into their 401(k) or 1 $000 in their IRA.

The House bill would expand the 401(k) catch-up to $10,000 for people age 62, 63 or 64. Workers registered in what is called SIMPLE packages would be entitled to $5,000 in catch-up contributions, compared to $3,000 currently.

The Senate proposal differs by allowing people between the ages of 60 and 63 to make the additional $10,000 catch-up contribution.

Both chambers’ proposals would require all catch-up amounts to be paid as Roth (after-tax) contributions.

Make part-time workers eligible for 401(k) sooner

The original Secure Act ensured that part-time workers who book between 500 and 999 hours per year for three consecutive years could be eligible for their company’s 401(k). The House and the Senate now want to reduce that period to two years.

Companies have already been required to grant eligibility to employees who work at least 1,000 hours a year.

Remaining 401(k) balances

Under current law, if you take a new job and leave behind a 401(k) worth less than $5,000, your ex-employer can kick you out. For amounts less than $1,000, you could be cashed out, while amounts between $1,000 and $5,000 are transferred to an IRA.

Both the House and the Senate are proposing to increase this amount above $7,000.

A related proposal in both houses would create a National Retirement Savings Scheme “lost and found” to help workers reconnect with retirement accounts they have lost sight of as they move from job to job throughout their careers.

Student loans versus retirement savings

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Proposals in both the House and Senate would make it easier for employers to make contributions to 401(k) and similar workplace plans on behalf of contributing employees. student loan repayments instead of contributing to their retirement account.

Raising the minimum age required for distribution

Under the bill passed by the House, the required minimum distributions, or RMDs, of retirement accounts would start at age 75 by 2033, up from the current age of 72, which was raised in the original Secure Act. from the age of 70 and a half.

The Senate proposal would raise the age of RMD to 75 by 2032.

Both would reduce the penalty for non-compliance with RMDs to 25%, and in some cases 10%, from the current 50%.

Improving ease of access to annuities

One option for providing an income stream later in life is a qualified longevity annuity contract, or QLAC. Once you have purchased the annuity, you specify when you want the income to start, which cannot exceed age 85.

However, the maximum that can go into a QLAC is $135,000 or 25% of the value of your retirement accounts, whichever is lower.

Both bills would remove the 25% cap. The Senate measure would also increase the maximum amount allowed in a QLAC to $200,000.

Elimination of Roth 401(k) RMDs, allowing matches

Under current law, Roth IRAs — whose contributions are made after tax — have no mandatory withdrawals during the owner’s lifetime — unlike Roth 401(k) accounts. A Senate proposal would eliminate these RMDs before death.

Separately, provisions in both chambers would allow workers to obtain their company’s 401(k) matching contributions on a Roth basis. Under current law, all matching contributions go into a pre-tax account.


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