Differences among 3 bills that will form SECURE 2.0

Three bills — the House-passed bipartisan Securing a Strong Retirement Act of 2022; the Senate Health, Education, Labor and Pensions Committee's Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act, or RISE & SHINE Act; and the Senate Finance Committee's Enhancing American Retirement Now Act, or EARN Act — each aim to bolster Americans' retirement security and will form the basis of a SECURE 2.0 legislative package. The bills are similar, but have some key differences:

Current law: Automatic enrollment and automatic escalation may be used by 401(k) and 403(b) plans, but are not currently required.

House-passed bill: New 401(k) and 403(b) plans must include automatic enrollment with a default rate of between 3% and 10%, as well as automatic escalation of 1 percentage point per year up to a maximum of at least 10%, but no more than 15%. Governmental plans, church plans, small employers with 10 or fewer employees, SIMPLE 401(k) plans, new employers that have been in existence for less than three years are exempted.

Senate bills: Not included.

Current law: Small employers with fewer than 100 employees may be eligible for a three-year startup credit that is up to 50% of administrative costs, up to a maximum yearly cap of $5,000.

House-passed bill: Increases credit to 100% of qualified startup costs for employers with up to 50 employees.

Senate bills: EARN Act increases the existing credit percentage to 75% for employers with 25 or fewer employees.

Current law: The existing saver's credit employs a tiered percentage system ranging from 10% to 50% based on adjusted gross income to determine the amount of the credit.

House-passed bill: Enhances and simplifies the saver's credit by creating one credit percentage (with no tiers) of 50% for all savers below the AGI threshold, at which point the credit phases out.

Senate bills: EARN Act modifies the existing saver's credit to make it refundable and turn it into a direct government matching contribution to the taxpayer's IRA or retirement plan. Like the House bill, it creates a single 50% credit percentage without tiers.

Current law: Prohibits 403(b) plans from participating in multiple employer plans, including pooled employer plans.

House-passed bill: Not included.

Senate bills: RISE & SHINE Act enables 403(b) plans to participate in MEPs.

Current law: Does not explicitly permit for short-term emergency savings accounts to be offered by employers and administered in tandem with ERISA-covered plans.

House-passed bill: Not included.

Senate bills: RISE & SHINE Act permits employers to offer an ERISA-covered retirement savings account that automatically enrolls employees at a rate of no more than 3% of pay. Account balances may not exceed $2,500. The accounts are subject to special notice and disclosure rules, and contributions are not tax preferred.

Source: Groom Law Group