WASHINGTON — U.S. Senators Ben Cardin (D-Md.) and Rob Portman (R-Ohio), members of the Senate Finance Committee and co-authors of the Retirement Security and Savings Act, lauded inclusion in the FY23 Omnibus Appropriations Act of critical reforms that will help more Americans save for retirement. Nearly half of the 92 provisions in the SECURE 2.0 section comes, in full or part, from the Cardin-Portman legislation that was approved unanimously by the Senate Finance Committee this summer. This legislation is the senators’ fourth and final comprehensive retirement savings legislation introduced together. Once enacted, it will allow individuals to save more for retirement, help small businesses offer retirement plans, expand access for low-income Americans and provide more certainty and flexibility during Americans’ retirement years.

“Americans need to save more so they can retire with the dignity and stability they deserve. It’s an ongoing struggle to reach lower- and middle-income workers, which is why I have been proud to work with Senator Portman to find reasonable solutions that help increase savings, expand access to retirement plans for working families, and promote lifetime income solutions,” said Senator Cardin, who is chair of the Senate Small Business and Entrepreneurship Committee. “We want more Americans engaged in saving for their future and this legislation strengthens and expands the tools available to reach that goal.”

“These are critical new protections that will make it easier for Americans to save for their retirement and have the financial security they need. As the economy deals with the effects of the worst inflation in nearly 40 years, working families need all the help they can get when it comes to saving for the next chapter in their lives and we are now one step closer to making that possible,” said Senator Portman. “I would like to thank Senator Cardin for his long-time partnership in this effort and look forward to this legislation being signed into law by the end of the year.”

Below is a sampling of the Cardin-Portman provisions included in the FY23 Omnibus Appropriations Act. The full SECURE 2.0 can be found here, starting on page 2046.

• SAVER’S MATCH: Current law provides for a nonrefundable credit for certain individuals who make contributions to individual retirement accounts (IRAs), employer retirement plans (such as 401(k) plans) and ABLE accounts, tax-advantaged savings accounts for individuals with disabilities and their families. The SECURE 2.0 section of the Omnibus package changes the credit into a federal matching contribution that must be deposited into a taxpayer’s IRA or retirement plan. The match is 50 percent of IRA or retirement plan contributions, up to $2,000 per individual. The match phases out between $41,000 and $71,000 in the case of taxpayers filing a joint return ($20,500 to $35,500 for single taxpayers and married filing separate; $30,750 to $53,250 for head of household filers). The final package also directs the Treasury Department to increase public awareness of the Saver’s Match to increase use of the match by low- and moderate-income taxpayers. These workers may not be able to save as much as necessary, but a match allows for increased savings.

• AUTO-ENROLLMENT: One of the main reasons many Americans reach retirement age with little or no savings is that too few workers are offered an opportunity to save for retirement through their employers. Even for those employees who are offered a retirement plan at work, however, many do not participate. But automatic enrollment in 401(k) plans – allowing for people to participate in the plan unless they take the initiative to opt out – significantly increases participation. Since first defined and approved by the Treasury Department in 1998, automatic enrollment has boosted participation by eligible employees generally, and particularly for Black, Latinx, and lower-wage employees. One study found that, in plans using automatic enrollment, younger, lower-paid employees and the racial gap in participation rates were nearly eliminated for employees.

• The provision states that the new 401(k) and 403(b) plans would be required to include (1) automatic enrollment at a minimum of 3% and a maximum of 10 percent and (2) automatic escalation at one percentage point per year, up to at least 10. For safe harbor plans, the cap on permissible auto escalation would be 15 percent; for non-safe harbor plans, the cap on permissible auto escalation would be 10 percent prior to 2025; for 2025 and later years, the cap would be increased to 15percent, like safe harbor plans. The requirement to include auto enrollment and auto escalation would be effective for 2024, and plans in existence on the effective date would be grandfathered in. There would be exceptions for government plans, church plans, employers with 10 or fewer employees, and new businesses that have not been in existence for three years.

• START-UP CREDIT: The SECURE 2.0 package helps small businesses be able to offer retirement plans for their employees. The 3-year small business startup credit is currently 50 percent of administrative costs, up to an annual cap of $5,000. SECURE 2.0 increases the startup credit to 100 percent for employers with up to 50 employees. Except in the case of defined benefit plans, an additional credit is provided for employers with 50 or fewer employees, which generally will be a percentage of the amount contributed by the employer on behalf of employees, up to a per-employee cap of $1,000.

• 403 (B) COLLECTIVE INVESTMENT TRUSTS: The final package expands investment options for public employees at a lower overall cost. Under current law, 403(b) plan investments are generally limited to annuity contracts and publicly traded mutual funds. This limitation cuts off 403(b) plan participants, who are typically employees of charities and public schools, colleges, and universities, from access to collective investment trusts. The final package would permit 403(b) custodial accounts to participate in group trusts, which are often used by 401(a) plans.

• STUDENT LOAN PAYMENT MATCH: The legislation includes a provision to assist employees who may not be able to save for retirement because they are overwhelmed with student debt, and thus are missing out on available matching contributions for retirement plans. The SECURE 2.0 package allows such employees to receive those matching contributions for repaying their student loans. It permits (but does not require) an employer to make matching contributions under a 401(k) plan, 403(b) plan, or SIMPLE IRA. Governmental employers also are permitted to make matching contributions in a section 457(b) plan or another plan with respect to such repayments.

• MILITARY SPOUSE RETIREMENT PLAN ELIGIBILITY FOR SMALL EMPLOYERS: Military spouses often do not remain employed long enough to become eligible for their employer’s retirement plan or to vest in employer contributions. The SECURE 2.0 provisions provide small employers a tax credit with respect to their defined contribution plans if they (1) make military spouses immediately eligible for plan participation within two months of hire, (2) upon plan eligibility, make the military spouse eligible for any matching or nonelective contribution that they would have been eligible for otherwise at 2 years of service, and (3) make the military spouse 100 percent immediately vested in all employer contributions. The tax credit equals the sum of (1) $200 per military spouse, and (2) 100 percent of all employer contributions (up to $300) made on behalf of the military spouse, for a maximum tax credit of $500. This credit applies for 3 years with respect to each military spouse and does not apply to highly compensated employees

• RECOUPMENT REQUIREMENTS FOR RETIREMENT PLANS: 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. SECURE 2.0 allows 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. Rollovers of the overpayments also remain valid.

• IMPROVING COVERAGE FOR PART-TIME WORKERS: Current law requires employers to allow long-term, part-time workers to participate in the employers’ 401(k) plans. It 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 one year of service (with the 1,000-hour rule) or three consecutive years of service (where the employee completes at least 500 hours of service). The SECURE 2.0 package reduces the three-year rule to two years, effective for plan years beginning after December 31, 2024.

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