SECURE Act 2.0 Sails Through The House; Bill Would Boost Annuities

The House of Representatives passed the Securing a Strong Retirement Act of 2022 (SSRA of 2022) Tuesday with overwhelming bipartisan support, 414-5.

The bill features provisions to loosen restriction on annuities in retirement plans in a section called Preservation of Income. It would change required minimum distribution rules to allow annuity options and also raise the limits on Qualified Longevity Annuity Contracts (QLACs).

The bill also:

• Raises the age to start required minimum distributions. Plan participants are required to begin taking distributions from their retirement plans at 72. The bill would raise it to 73 this year and increase it to 74 on Jan. 1, 2029, and 75 in 2032.

• Expands automatic enrollment in retirement plans in employer-sponsored retirement plans, while reducing the service requirements for part-time employees to participate in an employer plan. It requires 401(k) and 403(b) plans to automatically enroll participants, with an employee opt-out. The initial automatic enrollment amount is at least 3% but no more than 10%, but the amount would be increased by a percentage point each year until the total reaches 10%. It also allows employers to treat student loan payments made by their employees as elective deferrals for purposes of determining retirement plan matching contributions.

• Increases the catch-up contribution level to retirement accounts for people nearing retirement. Under current law, the limit on IRA contributions is increased by $1,000 for individuals who have reached age 50, but the bill would index such limits starting in 2023. It would also increase the limits on catch-up contributions for employees. 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. The bill would increase these limits to $10,000 and $5,000 to apply at age 62, 63 and 64.

• Reduces administrative burdens for plan sponsors by modifying retirement plan design rules and changes regulations on pooled employer plans and multiple employer 403(b) plans. Small businesses with 10 or fewer employees, new businesses (those that have been operating for less than three years), church plans and governmental plans are excluded from automatic opt-in requirements.

• Expands “Rothification” by requiring a section 401(a) qualified plan, section 403(b) plan, or governmental section 457(b) plan that permits an eligible participant to make catch-up contributions to treat those contributions as after-tax Roth contributions, according to a Deloitte report. The bill would also allow plan participants to designate employer matching contributions as Roth contributions, and permit SEPs and SIMPLE IRAs to be designated as Roth IRAs.

Insurance industry advocates such as the Insured Retirement Institute have been pushing for the changes since the SECURE Act in 2019. The bill was one of the key issues during IRI’s virtual legislative fly-in earlier this month.

"The bipartisan legislation will deliver measurable benefits to America’s workers and retirees who have anxiety over whether they will have sufficient retirement income that lasts throughout their golden years," said Wayne Chopus, president & CEO of IRI. "Our efforts will now shift to the Senate to continue the positive momentum and get a bill to President Biden this year.”

Some consumer advocates argue that the legislation would do little to help those on the lowest rungs of the earnings ladder. In an article earlier this month, Mother Jones called the provisions “paltry” in the article, “Congress Is Set to Make the Rich Richer — Again.”

But financial services' organizations were unanimous in their praise of the legislation:

Thasunda Brown Duckett, president and CEO of TIAA: "This proposal is especially important as it builds on the SECURE Act, which took significant steps to expand access to lifetime income and increase retirement security for all Americans."

Marc Cadin, CEO of Finseca: “The number one question our members hear from many of the clients they serve is, ‘Am I prepared for retirement?’ Today, Congress took a key step forward in offering additional tools for more Americans to be prepared."