Secure Act 2.0 Could Change Retirement Savings And Impact Small Business Owners

The Secure Act 2.0 (HR 2954 Securing a Strong Retirement) has been passed in the House of Representatives and is currently under discussion in the Senate Finance Committee.

If it becomes law, what will it mean for small business owners?

The Secure Act 2.0 could mean changes for employers, with changes to how 401Ks are managed for full- and part-time employees. It could also change how employers manage premiums for employees who owe student loans.

Secure Act 2.0 and retirement savings

The Secure Act 2.0 would also affect retirement plans for individuals as it would raise the minimum age for required benefits and increase the benefit limit for retirement plans.

Here are the details.

Changes to 401(k)s

Automatic enrollment for employee contributions would be a metric that employers must provide – unless the employee opts out. This requirement does not apply to companies with fewer than 10 employees, or companies that have been in business for less than 3 years. Currently, part-time workers can join employer 401(k)s after working as part-time workers for 3 years. In the proposed legislation, the period would be reduced to 2 years. If an employee makes payments on student loans, the employer can match the amount of the student loan payment as a contribution in the employee’s 401(k). The automatic enrollment would require employers to contribute 3% of the employee’s annual income. The percentage could be increased annually with a limit of 10%.

Changes to 403(b)s

403(b)s are pension plans used by employees of charities and public education organizations. Currently, 403(b) investments are limited to annuity contracts and mutual funds. The proposed legislation would: Extend authorized investment to collective investment funds.403(b) plans could participate in Members of the European Parliament (Multiple Employer Plans).

Boost Credits for Small Employer Retirement Plans

For employers with a maximum of 50 employees, the allowance for starter pension schemes, now 50%, would be increased to 100%. The dollar amount of the credit would have a limit of $1,000 per employee.

Changes to individual pension plans

The amount allowed for catch-up payments would be increased. Currently, individuals ages 62, 63, and 64 can contribute up to $6,500 to a retirement plan. That limit would be increased to $10,000. Simple Employee Retirement Plans (SEPS) and Simple IRAs qualify as Roth IRAs. If so appropriate, contributions could NOT be excluded from income at the time of tax. Currently, the age at which a person should start making payments from retirement accounts is 72. In 2022, that would change to 73. In 2029, the age would increase to 74, and in 2032, it would increase to 75.

Will the Secure Act 2.0 become law?

Support in the House was strong, with an overall vote of 414-5.

Support for pension reform is strong in both the House and the Senate.

However, similar proposals are also pending in the Senate:

HR 5891 The Rise Act

S1770 Pension and Savings Act

S1703 Improve access to retirement savings

The Senate committee can tweak or combine and will likely change before the final version goes to a vote. However, a positive vote on a version of the legislation seems possible and likely this spring.

Image: Depositphotos

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