4. HIGHER CATCH-UP LIMITS AT AGE
62, 63 AND 64
Under current law, employees whohave turned 50 are permitted to makecatch-up contributions under a retirement plan. The limit on catch-up contributions for 2021 is $6,500, except inthe case of SIMPLE plans, for whichthe limit is $3,000. The Act increasesthese limits to $10,000 and $5,000 (bothindexed), respectively, for individualswho have attained ages 62, 63 and 64,but not age 65.
5. STUDENT LOAN PAYMENTS AND
The Secure Act 2.0 permits an employer to make matching contributionsunder a 401(k) plan, 403(b) plan orSIMPLE IRA with respect to “qualifiedstudent loan payments.” The provisionis intended to assist employees whomay not be able to save for retirementbecause they are overwhelmed withstudent debt, and missing out on available matching contributions.
6. BOOSTS SMALL EMPLOYER
PENSION PLAN STARTUP CREDIT
Makes changes to the credit by:Increasing the startup credit from 50%to 100% for employers with up to 50employees, and except in the case ofdefined benefit plans, an additionalcredit would be provided. The amountof the new credit generally would be apercentage of the amount contributedby the employer on behalf of employees,up to a per-employee cap of $1,000.
7. ALLOWS CITS IN 403(B) PLANS
Under current law, 403(b) plan investments are generally limited to annuity contracts and mutual funds. Thislimitation cuts off 403(b) plan participants — generally employees ofcharities and public educational organizations — from access to collective investment trusts, which are often used by
401(a) plans due to their lower fees. The
bill permits 403(b) custodial accounts to
invest in collective investment trusts.
The bill amends the securities laws totreat 403(b) plans like 401(a) plans withrespect to their ability to invest in collective investment trusts, provided that:( 1) the plan is subject to ERISA, ( 2) theplan sponsor accepts fiduciary responsibility for selecting the investments thatparticipants can select under the plan,( 3) the plan is a governmental plan, or( 4) the plan has a separate exemptionfrom the securities rules. These changeswould increase the availability of low-cost collective investment trust optionsfor retirement savers and conform thesecurities law rules for 401(a) plans and403(b) annuities.
8. OPENS THE DOOR FOR ETFS IN
Secure 2.0 directs the Treasury
Department to update regulations to
facilitate the creation of a new type
of ETF that is “insurance-dedicated.”
The update would provide that own-
ership of an ETF’s shares by certain
types of institutions that are neces-
sary to the ETF’s structure would not
preclude look-through treatment for
the ETF, as long as it otherwise sat-
isfies the current-law requirements
for look-through treatment. Treasury
regulations have prevented ETFs from
being widely available through indi-
vidual variable annuities. ETFs cannot
satisfy the regulatory requirements to
9. MULTIPLE EMPLOYER 403(B) PLANSThe bill allows 403(b) plans to participate in MEPs, including pooledemployer plans (PEPs), generally underthe SECURE Act rules, including relieffrom the one bad apple rule so that theviolations of one employer do not affectthe tax treatment of employees of compliant employers.
Secure Act 2.0: A Gateway to‘Rothification’ of Retirement?
While the Securing a Strong Retirement Act of 2021 has a longway to go in the legislative process, thebill, dubbed the Secure Act 2.0, has theattention of advisors like Jamie Cox. Thebill was designed largely to make technical corrections to the initial Secure Actthat Congress passed in 2019, says Cox, amember of LPL Financial affiliate HarrisFinancial Group in Richmond, Virginia.
But it contains provisions that willplease some and frustrate others, he pointsout. Furthermore, it seems to be pushing more investor savings into non-tax-deferred individual retirement accounts,meaning Roth IRAs — which represents asignificant shift, according to Cox.
Cox has been in the advisory busi-
ness for 25 years and is active on LPL’s
Political Action Committee to speak with
lawmakers about how policy reforms
affect both investors and advisors. He
also was an advisory committee mem-
ber for the Insured Retirement Institute
for about a decade. If the bill passes
as it stands now, he says, those mak-
ing catch-up contributions to retirement
plans (who must be 50 and older) “will
be forced to make them on a Roth basis.”
In other words, “They will no longerbe allowed to be made as tax-deferredcontributions,” explained Cox, who hashelped clients retire from firms likeVerizon and American Electric Power.“That’s a big part of the revenue raise.This particular concept has come up multiple times and is called ‘Rothification.’”
To the veteran advisor, this stipulation in