Page 45 - Investment Advisor June 2021

4. HIGHER CATCH-UP LIMITS AT AGE bill permits 403(b) custodial accounts to of ETF that is “insurance-dedicated.”
62, 63 AND 64 invest in collective investment trusts. The update would provide that own-
Under current law, employees who The bill amends the securities laws to ership of an ETF’s shares by certain
have turned 50 are permitted to make treat 403(b) plans like 401(a) plans with types of institutions that are neces-
catch-up contributions under a retire- respect to their ability to invest in col- sary to the ETF’s structure would not
ment plan. The limit on catch-up con- lective investment trusts, provided that: preclude look-through treatment for
tributions for 2021 is $6,500, except in (1) the plan is subject to ERISA, (2) the the ETF, as long as it otherwise sat-
the case of SIMPLE plans, for which plan sponsor accepts fiduciary responsi- isfies the current-law requirements
the limit is $3,000. The Act increases bility for selecting the investments that for look-through treatment. Treasury
these limits to $10,000 and $5,000 (both participants can select under the plan, regulations have prevented ETFs from
indexed), respectively, for individuals (3) the plan is a governmental plan, or being widely available through indi-
who have attained ages 62, 63 and 64, (4) the plan has a separate exemption vidual variable annuities. ETFs cannot
but not age 65. from the securities rules. These changes satisfy the regulatory requirements to
would increase the availability of low- be “insurance-dedicated.”
5. STUDENT LOAN PAYMENTS AND cost collective investment trust options
EMPLOYER MATCHING for retirement savers and conform the 9. MULTIPLE EMPLOYER 403(B) PLANS
The Secure Act 2.0 permits an employ- securities law rules for 401(a) plans and The bill allows 403(b) plans to par-
er to make matching contributions 403(b) annuities. ticipate in MEPs, including pooled
under a 401(k) plan, 403(b) plan or employer plans (PEPs), generally under
SIMPLE IRA with respect to “qualified 8. OPENS THE DOOR FOR ETFS IN the SECURE Act rules, including relief
student loan payments.” The provision VARIABLE ANNUITIES from the one bad apple rule so that the
is intended to assist employees who Secure 2.0 directs the Treasury violations of one employer do not affect
may not be able to save for retirement Department to update regulations to the tax treatment of employees of com-
because they are overwhelmed with facilitate the creation of a new type pliant employers.
student debt, and missing out on avail-
able matching contributions.
Secure Act 2.0: A Gateway to
6. BOOSTS SMALL EMPLOYER
PENSION PLAN STARTUP CREDIT ‘Rothification’ of Retirement?
Makes changes to the credit by:
Increasing the startup credit from 50% hile the Securing a Strong lawmakers about how policy reforms
to 100% for employers with up to 50 WRetirement Act of 2021 has a long affect both investors and advisors. He
employees, and except in the case of way to go in the legislative process, the also was an advisory committee mem-
defined benefit plans, an additional bill, dubbed the Secure Act 2.0, has the ber for the Insured Retirement Institute
credit would be provided. The amount attention of advisors like Jamie Cox. The for about a decade. If the bill passes
of the new credit generally would be a bill was designed largely to make techni- as it stands now, he says, those mak-
percentage of the amount contributed cal corrections to the initial Secure Act ing catch-up contributions to retirement
by the employer on behalf of employees, that Congress passed in 2019, says Cox, a plans (who must be 50 and older) “will
up to a per-employee cap of $1,000. member of LPL Financial affiliate Harris be forced to make them on a Roth basis.”
Financial Group in Richmond, Virginia. In other words, “They will no longer
7. ALLOWS CITS IN 403(B) PLANS But it contains provisions that will be allowed to be made as tax-deferred
Under current law, 403(b) plan invest- please some and frustrate others, he points contributions,” explained Cox, who has
ments are generally limited to annu- out. Furthermore, it seems to be push- helped clients retire from firms like
ity contracts and mutual funds. This ing more investor savings into non-tax- Verizon and American Electric Power.
limitation cuts off 403(b) plan par- deferred individual retirement accounts, “That’s a big part of the revenue raise.
ticipants — generally employees of meaning Roth IRAs — which represents a This particular concept has come up mul-
charities and public educational organi- significant shift, according to Cox. tiple times and is called ‘Rothification.’”
Adobe Stock ment trusts, which are often used by ness for 25 years and is active on LPL’s INSIDE ROTHIFICATION
Cox has been in the advisory busi-
zations — from access to collective invest-
To the veteran advisor, this stipulation in
401(a) plans due to their lower fees. The
Political Action Committee to speak with

JUNE 2021 INVESTMENT ADVISOR 43