Substantial retirement reform legislation expected to pass by year’s end being cobbled together from three bills with many similar objectives
Provisions in all three bills
Some of the provisions that are in all three bills include:
- Further expand eligibility for long-term, part-time employees to make 401k plan contributions by lowering the service requirement from 3 years to 2 years.
- Permit employers to make matching contributions to a 401k, 403b or SIMPLE IRA based on qualified student loan payments. Employees who are making payments on their student loans (but not contributing to their retirement plans) would be able to get employer matching contributions, which would match the amount of the student loan payment up to a certain percentage of the employee’s salary.
- Enable eligible small employers who want to offer 403b plans to participate in MEPs and PEPs.
- Enhance the startup tax credit for small businesses launching a retirement plan.
- Create a new tax credit for small employers who employ military spouses with respect to their defined contribution plans.
- Index the currently unindexed amount the additional $1,000 an IRA owner can contribute annually to the IRA beginning at age 50.
- Permit penalty-free withdrawals from retirement plans for individuals in case of domestic abuse.
- Provide employer retirement plans with an extended period of time by which plan amendments must be adopted to reflect the changes in law made by the legislation.
- Enhance 403b plans by permitting 403b custodial accounts to invest amounts in collective investment trusts.
- Modify Treasury Department regulations that now prohibit exchange-traded funds from being included in the segregated account of a variable insurance contract to allow ETFs to be included.
- Remove some limitations of current Treasury Department Qualifying Longevity Annuity Contracts (QLACs).
- Remove RMD barriers for life annuities.
- Permit employees participating in a SIMPLE IRA or a Simplified Employee Pension (SEP) to elect to treat elective deferrals and employer contributions as after-tax Roth contributions.
- Provide all catch-up contributions to qualified retirement plans are subject to Roth tax treatment. [Note:This change is being made beginning in 2023 to prevent tax revenue from being lost. If catch-up contributions were put into a traditional IRA, it would wind up costing the government revenue because of the tax deductions.]
- Permit an employee to elect the option to treat employer matching contributions and other employer contributions to a 401k, 403b and 457b as after-tax Roth contributions.
Different approaches to same objective
Among the provisions that take different approaches to the same objective that need to be resolved are:
- Higher catch-up contribution limits: Allow people from age 62 to 64 to contribute an additional $10,000 to their 401k or 403b plans, or an additional $5,000 to SIMPLE IRA plans instead of the current limits of $6,500 and $3,000.
- Increasing the RMD age. The House bill increases RMD age from 72 to 75 by making it age 73 in 2023, age 74 in 2030 and 75 in 2033; while the EARN Act would increase the age from 72 to 75 effective after 2031.
- Modification of credit for small employer pension plan startup costs.
- Creating a retirement savings “lost & found”—a national database for Americans to find lost retirement accounts.
- Auto enrollment requirements: Require newly created 401k and 403b plans to automatically enroll all new, eligible employees at a 3% contribution rate that would be increased annually until it reaches 10%. Employers with current 401k plans, companies that are less than three 3 years old or that employ 10 or fewer people, and church and governmental plans would be exempt.
- Saver’s credit modifications
W&M Docs 3 (house.gov)
With all these changes slated for 2023, we believe that there has never been a better time to benchmark your plan to see how these changes may impact your company’s plan moving forward. DP Grow would be happy to help. Please feel free to reach out to us with any questions or a time to discuss your plan.
Contact Dennis Tender…804-729-3819, or dtender@dp-grow.com