US Retirement Legislation And Regulation Bulletin: Third Quarter 2022

On August 16th, President Joe Biden signed the Inflation Reduction Act into law, ending months of uncertainty over whether congressional Democrats would ever reach agreement on a compromise budget reconciliation bill. The new law, which required only 50 votes (plus the vice president’s tie-breaker) to pass the Senate, provides incentives to promote energy security and address climate change, extends enhanced Affordable Care Act subsidies, and reduces the deficit in part by imposing a new 15% minimum tax on certain large corporations. The partisan nature of that process, however, did not impede the continuing bipartisan work on a “SECURE 2.0” retirement package. Marking another step in that effort, the Senate Finance Committee in September introduced legislative text for its version of SECURE 2.0, the Enhancing American Retirement Now (EARN) Act (S. 4808). The committee had previously approved a summary of the bill in June.

With the mid-term elections fast approaching, any further significant developments in federal retirement policy are expected to be delayed until after the elections. The impending elections have not, however, had a significant impact at the state level, where several states have taken action in recent months to newly enact, launch, or expand a state-run, IRA-based retirement program for private-sector employees. Plan sponsors should also be mindful of a new litigation strategy involving target date funds that has recently been used against several plans. These and other developments are discussed in more detail below.

Legislative update

Inflation Reduction Act. For the retirement industry, the most noteworthy aspect of the Inflation Reduction Act is that it does not include any of the retirement-related provisions that were included in Democrats’ earlier attempts at a reconciliation bill. As such, the two significant retirement provisions included in the November 2021 House-passed version of what was then the Build Back Better Act did not become law, as many last year had expected. One of those provisions would have imposed a cap of $10 million on the amount that an individual may hold in all IRAs and defined contribution plans. The other provision would have prohibited “back door” Roth IRA and Roth 401(k) conversions beginning in 2022 and would have further prohibited all Roth conversions for high-income individuals beginning in 2032. The Inflation Reduction Act does, however, include some important tax-related retirement plan exemptions, including adjustments to the new 15% corporate minimum tax on book income for defined benefit pension plans.

SECURE 2.0. As described in our Second Quarter (Q2) 2022 Quarterly Bulletin, Congress achieved several key milestones in the development of a SECURE 2.0 legislative package from March through June. First, the House passed its version of SECURE 2.0, the Securing a Strong Retirement Act (SSRA) of 2022 (H.R. 2954). Then, in rapid succession, the Senate Health, Education, Labor and Pensions (HELP) Committee released its version of the bill, the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg (RISE & SHINE) Act (S. 4353), and the Senate Finance Committee released a description of its proposal, the EARN Act. The two Senate committees held markups in June and approved their respective bills on a unanimous basis. (A summary of several key provisions in the three SECURE 2.0 bills was provided in the Q2 2022 Quarterly Bulletin.)