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December 07, 2023 at 11:50 AM
What You Need to Know
- It's normal for significant legislation to have technical drafting errors, but the Secure 2.0 Act package included some big ones.
- One big error, for instance, would inadvertently disallow 401(k) catch-up contributions after 2024.
- The push is already on to find a piece of must-pass legislation to which to attach the new Secure 2.0 corrections bill.
Two key Congressional committees have released identical discussion drafts of legislation containing Secure 2.0 Act technical corrections and other clarifications.
Late on Wednesday, the Senate Health, Education, Labor and Pensions (HELP) Committee published a discussion draft of key legislation containing technical corrections and other clarifications concerning the Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act, colloquially known as the Secure 2.0 Act.
Members of the House Committee on Ways and Means also introduced an identical measure Wednesday, and the text of the bicameral discussion draft is now available for public review and comment.
Stakeholders across the financial services and retirement planning industries have been eagerly awaiting introduction of the legislation.
As various experts have stressed in discussions with ThinkAdvisor over the last year and a half, it is normal for big pieces of legislation to contain technical drafting errors, but the Secure 2.0 Act package included some big ones that could be materially disruptive for retirement savers and employers — clearly cutting against Congress’s stated intent.
One big error is found in Section 603 of the law, which is intended to increase pretax “catch-up contributions” for 401(k) plans and individual retirement accounts by 50% for individuals between the ages of 60 and 63.
However, as written, the law would inadvertently disallow catch-up contributions and significantly restrict how the catch-up contribution rules apply to employees who participate in plans of unrelated employers.
Congress’s actual intent in the errant section was to require catch-up contributions for participants whose wages from the employer sponsoring the plan exceeded $145,000 for the preceding year to be made on a Roth basis while permitting other participants to make catch-up contributions on either a pre-tax or a Roth basis, some expert say.
These are among the clarifications included in the new bill.
