Amidst the year-end and term-end rush to fund the federal government, some other legislative proposals are being considered for inclusion. Among these is SECURE 2.0, legislation intended to further reform retirement legal and tax provisions and plan options, following the bipartisan SECURE legislation passed in 2019.
While there were some good features in the House-passed bipartisan SECURE 2.0, there were more bad ones, and unfortunately, reports on the Senate version indicate that it is only slightly improved. It should not be included in any budget package this year and can wait for improvements from future Congresses.
As I have
written
extensively
, the House version of SECURE 2.0 does, albeit with a long lag, appropriately raise the minimum distribution age from 72 to 75, in recognition of the longer working lives of Americans and increased life expectancies over past decades. It also increases the allowable contributions to retirement plans for “catch-up,” at ages 62 to 64, thereby making plans more flexible and recognizing when workers are likely to have extra cash on hand. But there are many more bad provisions in the legislation.
There are two unfair and expensive special interest provisions favoring the wealthy and first responders. The House SECURE 2.0 legislates mandatory automatic enrollment and contribution escalation features in new plans, at high contribution levels, inappropriate for low-wage workers. It includes an expansion of eligibility to, and the extent of, the Saver’s Credit, whereby the federal government partially matches the contributions of moderate-income workers.
This is a good idea but should be delayed and designed to be included in a much larger Social Security solvency and retirement reform package, to help make such a package more politically popular while modernizing the retirement features of Social Security.
Similarly the possibly reasonable SECURE 2.0 proposal to create a “lost-and-found” entity at the Department of Labor to help workers find lost retirement accounts needs to be held until the underlying data from plan sponsors, now reported to Social Security, is made accurate and complete.
Most troubling, the “pay-fors” for this legislation come primarily from changing all catch-up contributions to Roth tax treatment, that is, current taxation on contributions but no taxation on distributions. This will be unpopular with older workers and just moves the cost of the legislation outside the 10-year scoring window. In other words, it is a budget gimmick.
Unfortunately, news
reports
indicate that the Senate version of SECURE 2.0 is only slightly better than the House version. The Senate does remove the bad policy proposal for a mandatory automatic enrollment and contribution escalation requirement. It adds, however, emergency access to 401(k) plans, a potentially slippery slope for accounts intended for long-term savings for retirement and likely unnecessary, given current-law allowances for access. The Senate makes the expansion of the Saver’s Credit even more widespread than the House. There are apparently some other small modifications of the House bill, but the pay-fors apparently would remain the same—in other words, a package of Roth gimmicks.
We can do better. There is no rush here. Social Security solvency and reform legislation is inevitable in a few years. We can spend that time to improve these retirement provision proposals, get the underlying data in shape, and find real pay-fors, such as simplifying the minimum distribution requirements or further tightening the IRA inheritance rules.
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This article originally appeared in the AEIdeas blog and is reprinted with kind permission from the American Enterprise Institute.
