Retirement savings fixes in mix for possible lame-duck action

Legislation to debug many provisions in a massive new retirement law (SECURE 2.0 Act of 2022) and expand investment options for Defined Contribution plans sponsored by educational institutions and charities may see action during the congressional lame-duck session that begins later this month.
Passed with broad bipartisan support nearly two years ago, the SECURE 2.0 Act contains more than 90 provisions to increase access to workplace retirement plans, boost overall savings, and simplify plan administration. Legislation as intricate as SECURE 2.0 often includes unintentional errors, however, and stakeholders began alerting lawmakers and regulators about drafting glitches soon after the law’s enactment.
House Ways and Means Committee Chair Jason Smith, R-MO, and ranking member Richard Neal, D-MA, along with Senate Finance Committee Chair Ron Wyden, D-OR, and ranking member Michael Crapo, R-ID, sent a letter to Treasury Secretary Janet Yellen and IRS Commissioner Daniel Werfel clarifying how several key provisions with drafting errors are intended to work. These and other lawmakers subsequently offered draft legislation to make corrections.
Although Treasury and IRS have already interpreted some of these provisions in a manner consistent with congressional intent, formal technical corrections legislation is still needed. The technical corrections legislation would make corrections to a range of provisions including:
- Confirming that catch-up contributions are allowed in 2024 and future years,
- Specifying that the required minimum distribution triggering age for people born in 1959 is age 73,
- Clarifying the limit on student loan payments that qualify for employer matches for catch-up eligible participants in DC plans, and
- Providing a special distribution event for distributions to terminally ill plan participants
Prospects for passing the fixes during the upcoming lame-duck session depend on whether they can be tacked onto a larger tax bill that might advance, but the outlook is unclear. If the technical corrections measure is not addressed this year, the next Congress will likely take up the issue.
Another high-priority retirement policy fix on the lame-duck wish list is bipartisan legislation to make securities law changes so 403(b) retirement plans for charities and educational institutions can offer Collective Investment Trusts. Widely used by 401(k) plans, CITs are a type of pooled investment vehicle similar to mutual funds.
Before enactment of the SECURE 2.0 Act, neither the tax code nor federal securities laws allowed 403(b) plans to offer CITs. Although the SECURE 2.0 Act amended the tax law, Congress couldn’t agree on the needed changes to federal securities laws. Bipartisan legislation passed by the House in March (and since introduced in the Senate) would make the changes, but the bill will have to move separately from other SECURE 2.0 fixes. Supporters hope the 403(b) fix will be in any final financial services legislation Congress might pass this year.
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