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More From Washington and the Courts
ERIC Calls for SECURE 2.0
To Pass This Year
The ERISA [Employee Retirement Income
Security Act] Industry Committee released
a letter addressed to Congress that detailed
its recommendations and views regarding
a package of retirement reform bills
dubbed SECURE 2.0, after the Setting
Every Community Up for Retirement
Enhancement Act of 2019. In the letter,
ERIC said it hopes to see a retirement
reform bill passed by the end of the year.
SECURE 2.0 refers to one bill passed
by the House, called the Securing a Strong
Retirement Act, and two Senate bills that
have passed their respective committees
but have not yet received a full vote. The
Senate bills are the Enhancing American
Retirement Now Act and the Savings
Enhancement to Supplement Healthy
Investments for the Nest Egg Act, or RISE
and SHINE. The three bills offer a variety
of means to increase Americans' ability to
save for retirement.
For example, provisions in the SSRA
and EARN bills are intended to make it
easier for workers with student loan debt
to repay it, freeing up money to save for
retirement.
Another common obstacle to saving
is that money in a retirement plan is inaccessible
in an emergency without incurring
a tax penalty for early withdrawal.
The EARN and RISE and SHINE bills
have early withdrawal provisions that
allow access to plan savings in certain
situations. ERIC likewise supports this
proposal.
The ERIC letter
that provision was set for 2025 by prior
legislation.
All
three bills permit well-funded
plans to forego recoupment of overpayments
if the overpayment was the fault of
the retiree. ERIC hopes to see this provision
in the final legislation.
" If a taxpayer
has already
paid an excise
tax for a missed
RMD in 2021 that
constitutes a
specified RMD ... "
The 10-Year RMD Rule
The IRS has issued Notice 2022-53,
providing guidance on final regulations
related to required minimum distributions
under Section 401(a)(9) of the Internal
Revenue Code; these will apply no earlier
than the 2023 distribution calendar year.
The notice also supplies guidance related
to certain provisions of Section 401(a)(9)
that apply for 2021 and 2022.
Previously, the RMD rules stated that,
also supported
simplifying fee disclosure and summary
plan statements, as well as tax incentives
for plan participation. Further, it backed
a provision found only in the EARN bill
that would allow overfunded pensions to
use the extra money on health and life
insurance benefits for plan participants
until 2032. The current expiration on
if an employee died after distributions had
begun, his remaining account balance
would need to be distributed to his beneficiary
at least as rapidly as under the distribution
method he had been using. If the
employee died before RMDs began, the
account balance had to be either distributed
to the beneficiary within five years
after the employee's death, or over the life
or life expectancy of the beneficiary, with
the distributions beginning no later than
one year after the date the employee died.
The Setting Every Community Up for
Retirement Enhancement Act amended
these rules such that the five-year rule
is lengthened to 10 years, and the new
10-year rule applies regardless of whether
the employee dies before the required
beginning date for RMDs or not. The
beneficiary may no longer take distributions
over her lifetime or life expectancy.
The new rules apply to situations in which
the employee-account holder died after
December 31, 2019.
Beneficiaries who are a surviving
spouse, a disabled person or a minor child
of the IRA- or qualified-retirement-planaccount-owner
or someone no more than
10 years younger than the IRA owner are
exempt from the new rules.
The IRS explains in its notice that,
during the 90-day comment period for
its proposed RMD rules, some individuals
who own inherited IRAs or are beneficiaries
under qualified defined contribution
plans indicated that they thought the new
10-year rule would apply differently than
what appeared in the proposed regulations.
They said they believed that, regardless
of when an employee died, the 10-year
rule would operate like the five-year rule,
under which there would be no RMD due
for a calendar year until the last year of the
10-year period following their inheritance
of the account.
These commenters explained that
they did not take an RMD in 2021 and
are unsure of whether they need to take
one this year. They asserted that, if final
regulations adopt the interpretation of
the 10-year rule set forth in the proposed
regulations, the IRS should provide transition
relief for failure to comply for RMDs
due in 2021 or 2022.
The notice provides that relief, saying
that, for taxpayers who did not take a
specified RMD,
the IRS will not assess
an excise tax. " If a taxpayer has already
paid an excise tax for a missed RMD in
2021 that constitutes a specified RMD,
that taxpayer may request a refund of that
excise tax, " the notice states.
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