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Accounting and Tax Planning Special Coverage

Save and SECURE

By Dan Eger

The SECURE Act, or Setting Every Community Up for Retirement Enhancement Act, was signed into law in December 2019. This legislation made it easier and more affordable for individuals to save for retirement by introducing new rules and incentives that promote long-term savings.

The SECURE Act also supports small businesses by making it easier for them to offer retirement plans to their employees.

Overall, the SECURE Act aimed to make retirement savings more accessible and secure for Americans of all ages and economic backgrounds.

The 2019 legislation included changes that affected traditional 401(k)s and IRAs, such as expanded eligibility for opening a Roth IRA, new requirements for minimum distributions from retirement accounts, and incentives for small businesses to offer retirement plans. The law also included provisions to benefit those who are retired or disabled, such as increasing the age at which a person must begin taking required minimum distributions from 70½ to 72.

Legislation commonly referred to SECURE 2.0 Act (the Consolidated Appropriations Act of 2023) was signed into law on Dec. 29, 2022. The SECURE Act 2.0 bolsters the benefits offered in 2019’s version, making it more enticing for employers to provide retirement plans and improve employees’ retirement prospects along the way.

What follows is a summary of some of the provisions, but keep in mind that the act includes more than 90 provisions that potentially affect retirement-savings plans.


Mandatory Automatic Enrollment

Effective for plans beginning after Dec. 31, 2024, new 401(k) and 403(b) plans must automatically enroll employees when eligible. Automatic deferrals start at between 3% and 10% of compensation, increasing by 1% each year to a maximum of at least 10%, but no more than 15% of compensation. Participants can still opt out.

“Overall, the SECURE Act aimed to make retirement savings more accessible and secure for Americans of all ages and economic backgrounds.”


Automatic Escalation

Beginning in 2025, for new retirement plans started after Dec. 29, 2022, contribution percentages must automatically increase by 1% on the first day of each plan year following the completion of a year of service until the contribution reaches at least 10%, but no more than 15%, of eligible wages. Governmental organizations, churches, and businesses with 10 employees or fewer, as well as employers in business for three years or fewer, are exempt from this policy.


Expanded Eligibility for Long-term, Part-time Employees

Under current law, employees with at least 1,000 hours of service in a 12-month period or 500 service hours in a three-consecutive-year period must be eligible to participate in the employer’s qualified retirement plan. SECURE 2.0 reduces that three-year rule to two years for plan years beginning after Dec. 31, 2024.


Increase in Catch-up Limits

Effective after tax year 2024, SECURE 2.0 provides a notable rise in the amount of contributions for those aged between 60 to 63. Generally, the additional catch-up limit for most plans is $10,000 and only $5,000 for SIMPLE plans. These amounts are subject to inflation adjustment just like the normal catch-up contributions. Furthermore, those more than 50 years old are eligible for increased contribution limits on their retirement plans (known as ‘catch-up contributions’). For 2023, the maximum catch-up contribution amount has been set to $7,500 for most retirement plans and will be subject to inflation adjustments.


Rothification of Catch-up Contributions for High Earners

For plans that permit catch-up contributions, high earners ($145,000 in paid wages from the employer sponsoring the plan the preceding year, indexed to inflation) can no longer enjoy the privilege of tax-deferred catch-up contributions, as their contributions need to be characterized as designated Roth contributions.


Treatment of Student-loan Payments for Matching Contributions

Starting in 2024, student-loan payments can be treated as part of your retirement contribution to qualify for employer-matched contributions in a workplace retirement account. Employers will have the flexibility to provide contributions to their retirement plan for employees who are paying off student loans instead of saving for retirement.


Emergency Savings Accounts

Starting in 2024, retirement plans will have the option of providing ‘emergency savings accounts’ that allow non-highly paid employees to make after-tax Roth contributions to a savings account within their own retirement plan. Employers may automatically opt employees into these accounts at no more than 3% of eligible wages. Employees can opt out of participation. No further contributions can be made if the savings account has reached $2,500 (indexed), or a lesser limit established by the employer. The Department of Labor and/or the Treasury Department may issue guidance on these provisions.


Withdrawals for Certain Emergency Expenses

Penalty-free distributions are allowed for “unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses” up to $1,000. Only one distribution may be made every three years, or one per year if the distribution is repaid within three years. Penalty-free withdrawals are also allowed for small amounts for individuals who need the funds in cases of domestic abuse or terminal illness.


Federal Contribution Match

Starting in 2027, low-income employees can gain access to a federal matching contribution of up to $2,000 each year that will be deposited into their retirement savings account. The matching contribution is 50% of the contributions, but it decreases according to income — for example, married taxpayers filing jointly between $41,000 and $71,000, and single taxpayers between $20,500 and $35500.


Required Minimum Distributions

Beginning Jan. 1, 2023, the age for required minimum distribution (RMD) from an IRA is increased to age 73. Starting in 2033, the RMD age will be 75. (IRA owners turning age 72 in 2023 would not be required to take RMDs in 2023.) Furthermore, the penalty for not taking your RMD has been decreased from 50% of what was required to be withdrawn to 25%, and even further down to 10% if corrected within two years.


Facilitation of Error Corrections

The act expands the self-corrections system, allowing more types of errors to be fixed internally without having to amend returns in the Employee Plans Compliance Resolution System.


Immediate Incentives for Participation

At this moment, employers use matching contributions as a means to motivate employees to save for their retirement. Beginning in 2023, employers can incentivize employees with gifts cards or other small monetary rewards to increase engagement, although any financial rewards should be small and cannot come from retirement-plan assets.

In summary, the SECURE Act 2.0 provides many new benefits and opportunities to save for retirement. It allows employers to offer more flexible contributions and encourages employees with incentives to become engaged in their own financial health. With reduced penalties and expanded self-correction rules, this act gives Americans more control over their retirement savings, allowing them to become better prepared for their future.

As always, it’s important to consult with your advisor for advice, as guidance and changes to provisions are expected, and everyone’s situation is unique.


Dan Eger is a tax supervisor at the Holyoke-based accounting firm Meyers Brothers Kalicka, P.C.; (413) 536-8510.


Another Step Forward?

By Jodi K. Miller, Esq.

Jodi K. Miller, Esq

Massachusetts has been a leader in healthcare system reform.

In 2006, Massachusetts passed a first-in-the-nation, comprehensive healthcare-reform law that sought to achieve near-universal coverage for all individuals in the Commonwealth. The 2006 reforms became a model for the federal Patient Protection and Affordable Care Act passed in 2010. In 2012, after making significant gains in healthcare coverage, Massachusetts enacted additional reforms, with a key aim of controlling healthcare costs.

Among other things, the 2012 reforms set statewide benchmarks to limit the growth of healthcare costs and created a new agency, the Health Policy Commission, which is responsible for monitoring increases in healthcare spending and market activity.

Last month, seeking to further overhaul the healthcare-delivery system in Massachusetts and build upon past reforms, Gov. Charlie Baker introduced new healthcare-reform legislation, titled “An Act to Improve Health Care by Investing in Value.” The legislation seeks to tackle challenges in the current healthcare system by improving access and care delivery, further containing costs, and protecting consumers from high out-of-pocket costs.

As a former healthcare executive and former Massachusetts secretary of Health and Human Services, Gov. Baker has a particular interest in healthcare. According to the governor, his “legislation supports holistic approaches to care, provides consumers and employers with affordable care options, promotes behavioral-health parity, and ensures everyone has access to the services they need.”

Preventive Measure

The governor’s proposal prioritizes investment in primary care and behavioral-health services with the goal of keeping patients healthier and avoiding more expensive services, like emergency-department visits. Specifically, the legislation requires that providers and insurers increase spending on primary care and behavioral-health services by 30%, while at the same time staying within spending-growth limits required by the 2012 healthcare-reform law. The new legislation introduces new penalties for failure to stay within those limits.

As a means to increase access to primary care, the legislation reforms the requirements for mid-level practitioners, such as nurse practitioners. States like California that have expanded the scope of practice for nurse practitioners have seen an increase in the use of, and access to, primary-care services. The new legislation would allow nurse practitioners and psychiatric nurse mental-health specialists to prescribe medications without a supervising physician.

“The governor’s proposal prioritizes investment in primary care and behavioral-health services with the goal of keeping patients healthier and avoiding more expensive services, like emergency-department visits.”

Similarly, the bill creates a mid-level dental-provider position to provide basic dental services, and expands the scope of practice for optometrists and podiatrists. To address the shortage of nurses in Massachusetts, the legislation makes it easier for nurses to move to the Commonwealth by allowing nurses licensed in another state to practice in Massachusetts without having to obtain a new license.

The bill also seeks to expand access to, and coverage of, mental and behavioral-health services through various measures, including provisions to encourage behavioral-health providers to accept insurance and to develop and grow the number of providers. The legislation establishes a Board of Registration of Recovery Coaches — a recommendation of the Recovery Coach Commission formed as part of the opioid legislation enacted in Massachusetts last year — which will credential recovery coaches who provide addiction-recovery services.

The legislation includes new consumer protections to manage healthcare spending and reduce consumers’ out-of-pocket costs. For example, it seeks to curb the practice of ‘surprise billing’ that consumers receive for emergency and unplanned services from out-of-network providers by establishing a default, out-of-network rate for such services. The bill also imposes limits on when a hospital can charge a fee for services delivered at an outpatient or satellite site and prohibits such fees for certain types of evaluative and diagnostic services.

The legislation also seeks to contain healthcare costs by addressing the high costs of prescription drugs. In addition to requiring pharmacists to inform consumers about the lowest cost options for the drugs they purchase, the legislation creates a review process for certain high-cost drugs and imposes financial penalties on manufacturers for increases in drug prices that exceed certain set percentages. Drug manufacturers also would be required to participate in annual cost-trend hearings before the Health Policy Commission.

Relatedly, the legislation imposes new oversight authority over pharmacy benefit managers, companies that negotiate contracts with drug manufacturers and manage pharmacy benefits and payments for health plans. Pharmacy benefit managers would be required to be certified with the Mass. Division of Insurance and report financial data to the Massachusetts Center for Health Information and Analysis.

In addition to cost controls, the legislation includes provisions aimed at improving access to appropriate, coordinated healthcare, including access to urgent-care centers and telemedicine services. According to a 2018 analysis by the Massachusetts Health Policy Commission, there has been a sharp increase in the use of urgent-care centers, where services are less expensive than those provided at hospital emergency departments.

The governor’s proposal seeks to improve access to, and to eliminate confusion regarding, urgent-care centers. For example, the names of clinics operating as urgent-care centers would have to include the term ‘urgent care’ or otherwise suggest that urgent-care services are provided. The bill also requires urgent-care centers to be licensed by the state Department of Public Health, and, as requirements of licensure, such centers must accept MassHealth (the Massachusetts Medicaid program), provide behavioral-health services, and meet standards for coordinating with patients’ primary-care providers.

The legislation also seeks to expand access to care by improving and increasing the use of telemedicine (healthcare services provided via telecommunication services such as videoconferencing). Telemedicine can be a cost-effective form of care, and it eliminates the requirement of travel, which can be significant for individuals living in rural areas. In an attempt to increase the use of telemedicine in the Commonwealth, the legislation creates a regulatory framework for such services and requires insurance-coverage parity for such services (i.e., if there is coverage for the services if provided in person, there must be coverage if the services are provided via telemedicine).

The legislation seeks to support community health centers and hospitals by investing in the Health Safety Net Trust Fund, which pays hospitals and community health centers for services provided to low-income residents who are uninsured or underinsured. The governor’s proposed investment – $15 million – constitutes less than 5% of the total amount paid out by that trust fund to hospitals and community health centers in 2018. The legislation also provides for additional funding to the Community Hospital and Health Center Investment Trust Fund through the penalties that the legislation imposes on drug manufacturers and providers for failing to meet cost-containment requirements.

Along with efforts to control healthcare spending, the legislation also seeks to control the price of insurance premiums, particularly those paid by small and mid-size employers and their employees. An October 2019 report from the Massachusetts Center for Health Information and Analysis found that premiums and cost-sharing obligations for private-sector employees in Massachusetts are continuing to increase at a faster rate than wages and inflation. Among other things, the legislation includes provisions which are designed to give small employers (50 employees or fewer) greater access to health-plan options.

Finally, on Oct. 18, the same day he filed his healthcare-reform bill, Gov. Baker issued an executive order to create a commission to study the combined individual and small-employer group health-insurance market. This unique market — known in Massachusetts as the ‘merged market’ — was established in 2007 with “the intention of increasing and stabilizing its risk pool to provide greater access to affordable health-insurance coverage,” according to the governor’s executive order.

The commission is tasked with analyzing the merged market in light of the legislative reforms and changes to the healthcare market that have occurred over the past 12 years and reporting recommendations to the governor by April 30, 2020, with the objective of “ensuring that all residents have access to affordable health-insurance coverage.”

Bottom Line

Gov. Baker’s proposed reforms are just that — proposals. Lawmakers at the State House are working on their own healthcare-reform legislation, including bills supporting a Medicare-for-all, single-payer system. What will follow are negotiations among legislators and the Baker administration, with the goal of passing comprehensive healthcare-reform legislation in Massachusetts before the Legislature’s formal session ends on July 31, 2020.

Jodi K. Miller, Esq. is a partner at Bulkley, Richardson and Gelinas, LLP, in Springfield, where she represents clients in commercial and other civil-litigation and regulatory matters, with a focus on health law.