The House passed the Securing a Strong Retirement Act, raising the age when Americans must start taking their money from retirement plans, expanding auto enrollments in 401(k)s and allowing qualified plans to offer annuities as their default investment for the first time. Dubbed SECURE 2.0, the bill is now headed to the Senate.

Passed yesterday by vote of 414 to 15, the bipartisan legislation “takes important steps toward enhancing the private retirement system and increasing retirement savings, including provisions that will incentivize small businesses to offer retirement plans, enable older Americans to save more and hold on to their savings longer,” SIFMA President and CEO Kenneth E. Bentsen, Jr. said in a statement.

The bill builds on a provision passed in 2019, which raised the age when investors are required to start taking minimum distributions from their qualified retirement investments to 72, up from 70½.

SECURE 2.0 goes further, increasing the age for RMDs to 73 in 2023, 74 in 2030 and 75 in 2033.

The bill also increases catch-up contributions to employer retirement plans for individuals age 62, 63 and 64 from $6,500 to $10,000 and provides an option so that employer matching contributions can be made to the Roth portion of retirement plans.

There is also a provision that would allow individuals age 70½ and older to make a one-time charitable distribution, up to $50,000, from an IRA to a split-interest trust, such as a charitable remainder trust.

The bill would allow plan sponsors to offer annuities as participants’ default investment for the first time and remove the required minimum distribution requirements for life annuities.

“The bipartisan legislation will deliver measurable benefits to America’s workers and retirees who have anxiety over whether they will have sufficient retirement income that lasts throughout their golden years,” said Wayne Chopus, president and CEO of the Insured Retirement Institute, a trade group that represents annuities companies. “Our efforts will now shift to the Senate to continue the positive momentum and get a bill to President Biden this year.”

But not all pundits and experts agree annuities make a good default investment in retirement plans. "I think annuities in most cases are breaches of fiduciary duty because of the single entity credit risk and excessive hidden fees," said Chris Tobe, an investment consultant who co-founded the Common Sense 401(k) Project, which works with plans to help reduce their exposure to litigation from high fees. "The super large plans have avoided offering annuities, so for the most part this is mostly a smaller and, in the case of hospitals, a mid-size employer plan issue.”

Sponsored by House Ways and Means Committee Chairman Richard Neal (D-Mass.) and Ranking Member Kevin Brady (R-Texas), SECURE 2.0 would also create richer catch-up contribution limits, hiking the catch-up limit to $10,000 for IRAs and $5,000 for SIMPLE IRA beginning in tax year 2022 for those who attain age 62 before the close of the taxable year.

The bill also expands automatic enrollment in 401(k) plans by requiring 401(k), 403(b) and SIMPLE plans to automatically enroll participants in the plans upon becoming eligible, with the ability for employees to opt out of coverage. 

SECURE 2.0 would also allow employers to fund long-term part-time employees’ retirement plans by reducing qualification from 500 hours over three years to two years.

Starting in 2023, the legislation would allow employers to match contributions to the 401(k) accounts made by employees who are paying off student loans if they don’t contribute enough to the 401(k) plan to receive a full match.

Under SECURE 2.0, repayment of qualified birth or adoption distributions would be limited to three years. It also would impose a three-year limitation on recontributions.

The legislation also includes the following provisions:

• Increases the startup credits for small employer pension plan credit to cover 100% of the cost to small employers to implement a plan for the first three years.
• Creates an additional credit to encourage small employers to make direct contributions to their 401(k) plans that can offset up to $1,000 of employer contributions for each participating employee. 
• Broadens the SECURE Act’s pooled employer or open multiple employer plans (MEP) to allow unrelated public education and other non-profit employers to join a single 403(b) plan.
• Increases the saver’s credit for low= and moderate=income workers who save in retirement plans by raising the match from the federal government by 50% starting in 2025.