Secure Act 2.0 and What You Need to Know

January 06, 2021
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The proposed legislation, “Securing a Strong Retirement Act of 2020”, could potentially help employers grow their retirement plan success by expanding coverage and boosting retirement savings.

The proposed legislation, “Securing a Strong Retirement Act of 2020”, may not be finalized until after January 21, 2021 but it would significantly impact 401(k)s, 403(b)s, and IRAs. The good news is it could potentially help employers improve the strength of their retirement plan by expanding coverage and increasing retirement savings. Here's a list of the ten key changes that are in the proposed legislation:

Expand automatic enrollment in retirement plans: 401(k), 403(b) and SIMPLE plans would be required to automatically enroll eligible participants unless employees opt out. The initial automatic enrollment deferral would be at a minimum of 3% but no more than 10%. Each year, the amount would increase by 1% until it reaches the maximum 10%.


Simplify and increase in Saver’s Credit: The proposal would amend the Saver’s Credit to create a single 50% rate, increase the maximum credit amount from $1,000 to $1,500 per person, and raise the maximum income eligibility amount. The legislation would index the credit to inflation.


Raise the age to begin mandatory distributions: While The SECURE Act generally increased the required minimum distribution age to 72, the proposed legislation would increase the required minimum distribution age to 75.

Index the IRA catch-up limit: Under current law, the limit on IRA contributions is increased by $1,000 (not indexed) for individuals who have attained age 50. The legislation would index IRA catch-up limit contributions beginning in 2022.


Allow higher catch-up contribution after age 60: Currently, employees who are 50 and older can make catch-up contributions to retirement plans that exceed overall applicable limits. For 2020, the catch-up contribution is $6,500, except in the case of SIMPLE plans in which case the limit is $3,000. The legislation would increase these limits to $10,000 and $5,000 (both indexed), respectively, for individuals 60 and older.


Multiple Employer 403(b) Plans: The proposed legislation would allow 403(b) plans to participate in Multiple Employer Plans (MEPs), generally following MEP rules under The SECURE Act rules.


Allow small immediate financial incentives for contributing: To motivate participants to contribute to a 401(k) plan, the bill would allow small immediate incentives such as gift cards. While section 401(k)(4)(A) of the Internal Revenue Code generally prohibits any incentives other than matching contributions, de minimis financial incentives would be exempted.


Reduce the excise tax on certain accumulations in qualified retirement plans: The Act would reduce the penalty for failure to take a required minimum distributions (RMD) from 50% to 25%. If a failure to take a RMD is corrected in a timely manner (as defined under the bill), the excise tax on the failure is reduced from 25% to 10%.


 Exempt individuals with certain account balances from RMD rules: The proposed legislation would not require participants to take a RMD if the balance in their retirement plans and IRAs (excluding defined benefit plans) is not more than $100,000 (indexed) on December 31 of the year before they attain 75.


Modify the credit for small employer pension plan startup costs: The proposed start-up credit would be increased from 50% of administrative costs to 100%, for employers with up to 50 employees.

  • Excluding defined benefit plans, an additional credit would be provided equal to the applicable percentage of the amount contributed by the employer on behalf of employees, up to a per-employee cap of $1,000. The full additional credit would be limited to employers with 50 or fewer employees and phased out for employers with between 51 and 100 employees.
  • The applicable percentage would be 100% in the first and second years, 75% in the third year, 50% in the fourth year, and 25% in the fifth year.



To keep informed about the Securing a Strong Retirement Act of 2020, and how you can drive retirement plan success within your organization or with your clients, please contact us today.

Source: Hartford Funds

This information is not intended to be a substitute for individualized tax or legal advice. We suggest you discuss your specific situation with a qualified tax or legal advisor.