Retirement Enhancements Expected in 2022 Legislative Proposals
By Mike Rahn, CISP
When it comes to accomplishing legislative priorities, 2022 could be an interesting year. Democrats hold a 10-seat majority in the 435-member House of Representatives. This is a mid-term election year, and House members in competitive districts may be cautious about constituents’ reaction to votes that they cast between now and November.
In the Senate, the Democrat/Republican split is 50-50, owing only to that fact that two Independents have chosen to caucus with the Democrats. Vice President Kamala Harris could provide a potential tiebreaker as President of the Senate. Current Senate rules allow opponents to block all but very limited budget-related bills if they lack 60 approving votes. The loss of even one Democrat’s vote can yield failure if Republican senators cast their votes along party lines.
Against this backdrop, several bills with provisions that would alter tax-advantaged savings arrangements have been introduced. When—or whether—these provisions will find their way into law is uncertain. What is clear is that they represent important priorities for the House and Senate lawmakers responsible for their drafting and introduction.
Changes on the Immediate Horizon?
The legislation of greatest urgency to the Biden administration is the Build Back Better Act. This bill narrowly missed passage and enactment in late 2021, falling just short of Senate approval after its passage in the House of Representatives. As introduced, the legislation includes provisions that would make several significant changes to IRAs and employer-sponsored retirement plans. If the Build Back Better Act is revived and enacted in 2022, it is likely to be revised to reduce the size of its expenditures. But the provisions below—while not without some controversy—are not thought to have played a role in the bill stalling in 2021 and could well remain in it.
Effective dates for these provisions are as initially proposed, but could be subject to change before enactment.
Limit IRA and employer plan accounts to a combined $10 million for high-income persons (2029)
Require distribution—at any age—of amounts exceeding $10 million by high-income persons (2029)
Eliminate Roth conversions of after-tax non-Roth IRA and employer plan balances—essentially ending the “back-door-Roth” loophole (2022)
Eliminate Roth IRA conversions by high-income individuals (2032)
Potential Changes in Other Bills
Prospects for more retirement savings changes in the year ahead are considered quite positive. Many expect a bipartisan package to be made up of components of several bills—collectively being referred to as SECURE 2.0—and to include some, or all, of the following. No timeline for its consideration has been announced.
Increase the RMD age from 72 to 75, and exempt small balances from RMD requirements
Index for inflation the age 50 IRA catch-up contribution limit (now fixed at $1,000)
Increase the salary deferral standard catch-up contribution limit for 401(k), 403(b), governmental 457(b), and SIMPLE retirement plans for participants ages 62, 63, and 64.
Allow additional employer contributions to SIMPLE IRAs
Extend automatic enrollment to SIMPLE IRA plans
Permit sole proprietor retroactive deferrals (e.g., SIMPLE IRA plans)
Permit SIMPLE IRA and SEP contributions to be made to Roth IRAs
Permit Roth IRA rollovers to Roth accounts in employer plans
Expand the Saver Credit for IRA and salary deferral contributions
Permit self-correction of inadvertent IRA failures
Increase from $5,000 to $7,000 the threshold at which an employer plan may “cash out” small balances and roll them over to IRAs
More Certainty in Disaster Situations
The Infrastructure Investment and Jobs Act, signed into law in November, 2021, assures IRA owners and employer plans affected by a federally declared disaster of a minimum of 60 days to complete certain tax-related acts.
Complete rollovers and recharacterizations
Make IRA and employer plan contributions
Correct excess contributions
Other prescribed tax-related acts
The mandatory 60-day postponement period currently begins on the earliest “incident date” specified in a Federal Emergency Management Agency (FEMA) disaster declaration and ends 60 days following the later of 1) the earliest incident date or 2) the date that FEMA announces a federal disaster declaration.
HSA Changes “On Hold?”
Enhancement of health savings accounts (HSAs) has generally lacked the bipartisan support enjoyed by retirement provisions of the SECURE Act of 2019, and proposed changes under SECURE 2.0. Expect only limited HSA changes—if any—in the near future. Worth noting, however, is the fact that past enhancement proposals have consistently included the following.
Decouple HSAs from high deductible health plans, allowing contributions by those with conventional health insurance plans
Expand eligible HSA expenses, including home care services
Increase maximum HSA contributions
Provide enhanced portability of Health Reimbursement Arrangement and health Flexible Spending Account assets to HSAs
Conclusion
The retirement industry is constantly changing, and 2022 may bring even more changes. If these proposed bills are signed into law, they could significantly affect your clients and your organization.
Ascensus will continue to follow any new legislation as it develops. Visit ascensus.com for the latest news and developments on this and other issues.
