The proposed 'Secure 2.0' could benefit retirement savers, but certain parts of the law require further refinement.

• Despite the House passing a "Secure 2.0" bill last week, the Senate has been slower in moving on its version.
• Although many provisions in the House and Senate bills are the same, some House proposals differ from the Senate's proposals.
• Some key provisions that would affect retirement savers or retirees have differences.

Congress may pass a bill this year to improve the U.S. retirement system, but it might differ from the House-approved version.

The Securing a Strong Retirement Act (H.R. 2954) was approved March 29 by the House in a bipartisan 414-5 vote. This measure aims to enhance the original Secure Act of 2019, which introduced changes to improve retirement security.

The Senate must approve the legislation before it can be signed into law by President Biden, and their ideas on retirement improvements may not align with the House-approved version.

According to Paul Richman, the Insured Retirement Institute's chief government and political affairs officer, there are overlapping provisions as well as unique ones in each. The success of these provisions in the final bill will depend on the negotiations.

The Retirement Security and Savings Act (S. 1770) is still pending in the Finance Committee, and the Senate has not acted on it as quickly as expected.

Both bills propose to establish a retirement savings "lost and found" and enable part-time employees who work at least 500 hours for two consecutive years to be eligible for their company's 401(k) plan.

Both bills would simplify the process for employers to contribute to employees' retirement plans while they are paying off student loans.

Although both the House and Senate have provisions with support, the specifics may differ. While the House bill aims to cover revenue losses with proposed measures, the Senate has not yet identified any offsets.

The legislative process may result in modifications to the current provisions in either version, or the removal of some. If the Senate passes its own bill, any differences with the House version must be resolved before obtaining final congressional approval. In other words, although bipartisan support exists, there are numerous opportunities for the legislation to evolve.

Richman stated that many Congress members want it to become law.

Some retirement provisions have key differences that could affect savers and retirees.

Auto-enrollment in 401(k) plans

The bill that passed the House mandates that employers must automatically enroll employees in their 401(k) plan at a minimum rate of 3% and gradually increase it until the worker contributes 10% of their pay. Excluded from this mandate are businesses with 10 or fewer employees and new companies in operation for less than three years.

Although the Senate's version does not mandate auto-enrollment, it offers incentives to motivate companies to implement this feature.

Catch-up contributions

Retirement savers aged 50 or older have the option to make catch-up contributions to their retirement savings, in addition to the standard annual contribution limits of $20,500 for 401(k) plans and $6,000 for individual retirement accounts in 2022. Those who qualify can contribute an extra $6,500 to their 401(k) or $1,000 to their IRA.

Both the House and Senate bills propose to increase the catch-up contribution limits for 401(k) plans, although the details vary. The House bill would allow individuals aged 62, 63, or 64 to contribute an additional $10,000 to their 401(k) starting in 2024, while workers enrolled in SIMPLE plans would be able to make $5,000 in catch-up contributions, up from the current $3,000.

The Senate bill is more generous with the 401(k) catch-up contribution of $10,000: It would apply to people age 50 or older.

The House bill proposes a change in the tax treatment of catch-up contributions to 401(k) plans and the like. Starting in 2023, all such contributions would be treated as Roth contributions, meaning they would be made after tax. Currently, workers have the option to make those contributions on a pretax or Roth basis, depending on their company's offering.

Currently, employers can only contribute to pretax accounts. However, a provision in the House bill would allow them to make post-tax (Roth) contributions if the employee chooses to do so.

Required minimum distributions

The 2019 Secure Act changed the age at which required minimum distributions (RMDs) from retirement accounts must begin from 70½ to 72. Under the House-passed bill, those mandated annual withdrawals wouldn't have to start until age 73 in 2023, and then age 74 in 2030 and age 75 in 2033.

The Senate proposal suggests raising the RMD age to 75 by 2032, waiving RMDs for individuals with less than $100,000 in aggregate retirement savings, and reducing the penalty for failing to take RMDs to 25% from the current 50%.

Annuities

One option to generate income in the future is through a qualified longevity annuity contract (QLAC). After purchasing the annuity, you can choose when you want the income to commence.

The maximum amount that can be invested in a QLAC is either $135,000 or 25% of the value of your retirement accounts, whichever is lower.

The Senate measure would increase the maximum amount allowed in a QLAC to $200,000 while both bills would remove the 25% cap.