Where Secure Act 2.0 Gets Complicated: Hopkins, Levine, Treichel

News April 14, 2022 at 01:24 PM
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While the Securing a Strong Retirement Act of 2022, or Secure Act 2.0, is likely to become law this year, the current version of the bill contains provisions that are "unnecessarily complicated" and others that are downright odd, retirement experts said Wednesday during a ThinkAdvisor webcast. (Check out the replay here.)

Jamie Hopkins, managing partner of Wealth Solutions at Carson Group, was joined by Jeffrey Levine, chief planning officer at Buckingham Wealth Partners and Bonnie Treichel, chief solutions officer of Endeavor Retirement, a consulting firm for retirement plan sponsors, advisors and service providers.

They also offered their views on how the Senate version of Secure Act 2.0 may differ, and agreed that some version of the bill will likely be passed into law this year.

"I don't see a reason that this [Secure Act 2.0] doesn't pass this year," Hopkins said. "You put this in the 'as likely as possible' category of legislation."

Hopkins warned attendees that clients are going to ask about Secure 2.0, "so be prepared for those questions."

Also, prep your colleagues on the bill. "I was surprised that some people in offices knew a lot [about the bill] and somebody else knew almost nothing," Hopkins relayed. "So you could be a huge lift to your firms, the others around you by taking those couple minutes" to educate them.

As it stands now, the foundation of the Senate's version of Secure 2.0 is the Retirement Security and Savings Act, introduced by Sens. Rob Portman, D-Ohio, and Ben Cardin, D-Md. But provisions from other bills will likely be added to the Senate's bill.

"We don't know if we'll get the pure House version as it moves through or we get some variations from the Senate version," Hopkins said.

"One-third" of the provisions in the Retirement Security and Savings Act are identical to those in the House version, but the bills are not the same, Hopkins said.

'Complicated' RMD Changes

Required minimum distributions have gone through major changes in recent years.

They "mostly got suspended" in 2020, and the IRS released new life expectancy tables in January, Hopkins relayed. And that's after the original Setting Every Community Up for Retirement Enhancement Act raised the RMD age from 70 1/2 to 72 in 2020.

The Secure Act 2.0 would raise the RMD age further, to 75.

"People don't understand the required minimum distribution rules now," Levine said, "and the House version contemplates gradually pushing back that required beginning date, so beginning next year, it would be those turning 73; then we push it back again in 2030. It is so unnecessarily complicated."

The Senate version "simply says 'at 2030 let's just go to age 75 then,'" he said. "While I'm not fond of betting on what Congress will do, I think they will err toward the simpler version."

But one question, Levine said, is "who actually benefits" from such a change?

This change "is only impacting a minority" of investors, he points out. "Roughly 80%-plus of the people today already take more than their required minimum distribution; if you're taking more, there's a reason for it: You need it. So someone telling you [that] you can take even less than you're required to take now when you're voluntarily taking more, doesn't actually move your needle."

But advisors will see their clients benefit from "potentially that ability to push back and defer longer; to just kick that can down the road for some," Levine said. "The next solution becomes, if I can defer longer that means I can potentially convert more today at more attractive rates. Because once you hit required minimum distribution age, the RMD cannot be converted … with that in mind, by pushing back RMDs and also through the new [IRS] tables that we have, which lower the RMDs by about 5% or so at the starting ages, that would allow more individuals to convert more dollars at tax-efficient brackets, or before phasing out credits pushing themselves into a higher Medicare Part B premium, etc."

Rothification

"We're certainly headed toward a direction of 'Rothification'" in Secure 2.0, Levine said. "This is the idea that over time people are going to have to use Roth IRAs. Not that long ago, just back in 2017, that was a major part of the Tax Cuts and Jobs Act; it was a huge pay-for, meaning they were going to require Rothification in order to lower the cost of the overall bill."

That provision was removed after pushback, but "it's being brought back [in Secure 2.0] for at least a portion of contributions," he said. "Whereas some contributions would be required to be Roths, there's this subtle push toward Roths with other — specifically we're talking about 'catch-up' — contributions. Catch-up contributions under Secure Act 2.0 under the House bill would be required to be made to a Roth-style account" — Roth 401(k)s and 403(b)s.

However, "not all plans have plan Roth accounts today."

What does that mean if the bill passes into law? "Does it mean that every plan must have a Roth option included in it? Otherwise it's not going to allow catch-up contributions? Would we grandfather [plans]?" Levine asked. "It would really be very challenging to deal with that from an administrative perspective."

Catch-Up Contributions, Auto-Enrollment

"There are so many little provisions" in Secure 2.0, like auto-enrollment and catch-up contributions, for advisors to share with clients, Treichel said.

The auto-enroll provision "misses the mark," Treichel said, "because it's starting with auto-enroll at 3% — but only for new plans. And then it has an auto-escalate at 10% … All those plans that are already out there will not be required" to add auto-enrollment.

One of the "oddest provisions" is an increase in catch-up contribution limits for those age 62, 63 and 64 to $10,000, Hopkins said.

Treichel agreed.

"If I put myself in the place of a plan administrator or plan fiduciary, that's great … we're trying to do something nice by increasing that catch-up limit, but then we're doing it at these specific ages. … Even with the communication strategy for your participants in a plan, that's just really complex."

The Senate bill simplifies this provision, Levine pointed out, in that it raises the catch-up contribution limit to $10,000 beginning at age 60.

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