SECURE Act 2.0 – Are There Angels in the Details?

SECURE Act 2.0 – Are There Angels in the Details?

Once in a great while – we’re talking about the government now – things work out fine.

Legislation colloquially known as SECURE Act 2.0, now grinding its way through a cantankerous Congress, may be nearing completion. Pundits think some form of bill will soon be ready for a vote, and the retirement planning business should quickly prepare for a shakeup.

In a cynical age, we’re used to a narrative of life unfailingly worsening. All that is noble, rational or tasty is spoiled, soiled, bunged up and thrown down. The timeless lament of the middle-aged man, now spread to the general populace!

My friend Dr. Alex, sociology professor, owns a mind stuffed with high purpose. He’s soulfully dedicated to his whelp students, determined to whip those snow crystals into model citizens. He’s ever hopeful, yet just today, Alex was downbeat: he was lamenting the demise of the great Fenway Frank.

At home for a holiday, he’d snagged bleacher seats, and a handful of wieners. “They’re not in the league with the dogs we wolfed down as kids – not by one greasy mile,” and I quote.

It’s that health and safety hocus-pocus, rued Alex. He snagged this antique wording from my father, who said as much endlessly in the old days. Dad particularly relished the memory of Joe & Nemo’s epic franks. Their magical stand was near Boston Garden, where dad took sober refreshment in the Celtics’ dynasty years of the 1960s.

The 1970s, my glorious time, was a silver age of hoops, artless if intense; the franks followed the league down. That indefinable 1940’s flavor, in days when the hot dog was top dog, was lost. “It’s these health rules,” said dad, setting a trend. “In those days, who knew what went in the vat? I wonder if the odd rat didn’t fall in – maybe they’re tasty!” So he’d declare and we kids would laugh, but I still wonder if he wasn’t serious.

So the good stuff gets spoiled, life only gets harder, and these kids don’t know what they missed… aw, what a load of I-won’t-say-what, to quote pops.

This deteriorative thinking recalls Russian history. Let’s start where the troubles began: Tsar Ivan IV, 16th century. The Terrible they called him, a tricky translation, more properly: Awesome, Formidable, or Fearsome, or as my friend Mitya, matchless historical critic from Moscow, would say: “That bastard.”

Forgive the frothy language; in Russian it sounds even worse. Ivan came to power, Russki historians say, and poor terrorized peasants suffered beyond measure. Then he died, ‘devil take him’, and there was wildness, and the krest’yane groaned. The Romanovs gained the Kremlin, changed ancient ways, and the poor did roar in their torment. Take the story up to the 20th century – the classical era of: ‘Can’t get any worse, you say? Guess what!’ – and you wonder how anyone survived.

‘Time mahchez awn’, old pops did lament. Yet today, a time of inscrutable clownishness in halls of power, sensible ideas are being tabled. So we return to our topic, SECURE Act 2.0, and the helpful provisions that lie hidden inside it.

Congressional sponsors, encouragingly bipartisan, want SECURE 2.0 to improve access to tax-positive retirement plans, so we citizens can build nest eggs that endure to our natural ends – please recall today’s double-edge blessing, lengthening lifespans. It’s no good to live long if you can’t pay for sports tickets, or food.

Congress is examining parallel bills in the Senate (S. 1770, the Retirement Security and Savings Act of 2021) and the House of Representatives (H. R. 2954, the Securing a Strong Retirement Act). The House’s bill looks set to pass first, with reconciliation to follow, though both bills are already quite similar.

Both versions would expand 401(k) eligibility to more part-time workers. In the SECURE Act of 2019, anyone working 500 hours per year for three years in a row could join their employer’s 401(k) plan. If 2.0 becomes law, the required service time would be cut to one year.

Some business owners complain at the bookkeeping load of tracking those hours, yet off-the-shelf software can handle the task – I work with it daily. Businesses may simply allow all part-time staff to participate in their 401(k) plans, thereby easing the load to everyone’s benefit.

SECURE 2.0 would address a distressingly common situation, where companies accidentally overpay retirement benefits. When this occurs, the IRS requires a clawback from the hapless retiree. I’ve seen it up close and it’s harrowing.

If 2.0 passes, plan sponsors would be allowed more leeway, up to writing off the overpayments. To protect themselves, companies would need to audit their plans diligently to assure all is ship-shape. Anticipating this change, some firms are already hiring consultants to conduct regular, thorough reviews of plan participants and payments, and this practice may soon become the norm.

‘Lost participants’ are another routine problem for pension funds: retirees or their spouses who are eligible for benefits, but who cannot be located. SECURE 2.0 proposes establishing a Retirement Savings Lost and Found, where plan sponsors could list the ‘missing’. How the ‘Lost and Found’ would find these mysterious folk has yet to be codified.

I can sense privacy issues, but it surely can work. Let’s say you’re wondering if your elderly mother, struggling in retirement, has left any benefits on the table. You could launch a query on the proposed ‘lost and found’ to see if past employers were looking for her. It’s a fine idea, with success resting on sound execution.

Retirement plans are inescapably complex and providers make honest mistakes. The IRS, never happy with error, often slaps them with fines for slip-ups. If 2.0 becomes law, using the Employee Plans Compliance Resolution System to report errors discovered would become easier, with longer grace periods and other policy adjustments reflecting a less-rigid attitude.

Could this signal a move away from threat-based compliance toward a model that encourages cooperation of business and government to help citizens plan for secure retirements? I hope we live to see such a day.

The retirement planning industry can be suspicious of change: better the devil they know than an angel of minor acquaintance. Yet any change from the government that brings simplicity, reason and goodwill should be welcomed. If there’s wariness today, jot it down to the rarity of good service from our often befuddled leadership. Just this once, though, I’m hoping for the best. President Joe, don’t make me regret it.

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