By Manny Ramirez and Fernando Jimenez
Just before funding for the federal government was set to expire on December 23, 2022, Congress passed—and President Biden is poised to sign—the Consolidated Appropriations Act of 2023. The nearly $1.7 trillion appropriations bill averts a government shutdown and funds the federal government through fiscal year 2023, which ends September 30, 2023.
An omnibus spending bill is a combination of appropriations bills that each authorize funds for different parts of the government. In this omnibus bill, legislators in the House and the Senate were able to vote on a single spending package rather than on individual funding bills for different agencies or areas of government.
The massive package was filed as a substitute amendment to H.R.2617 and includes a significant boost in defense spending requested by Republicans. It provides the military with $858 billion, an increase of $76 billion or about 10 percent over FY22, and $773 billion for non-defense spending, an increase of $43 billion or about 5.5 percent over FY22.
Below is an overview of some of the policy riders that made it into the spending plan and those that were not included.
What was included:
Ukraine aid: The package provides $45 billion in military and economic aid to Ukraine to repel Russian attacks, exceeding Biden’s request for $37 billion. Notably, it was announced that Ukrainian President Volodymyr Zelensky traveled to Washington on Wednesday to address a joint session of Congress.
Funding for January 6 attack prosecutions: The bill would provide $2.6 billion for US Attorneys, which would include funding efforts “to further support prosecutions related to the January 6 attack on the Capitol and domestic terrorism cases,” according to a fact sheet from the House Appropriations Committee. The package also gives $11.3 billion to the Federal Bureau of Investigation, including for efforts to investigate extremist violence and domestic terrorism. The funding measures are part of nearly $39 billion that would be for the Justice Department.
TikTok ban: The “No TikTok on Government Devices Act” legislation pushed by Sen. Josh Hawley (R- MO) would prohibit the download of the popular app on government devices. The Senate unanimously passed the bill last week. It comes at a time when many states have enacted similar TikTok bans on government devices, reflecting bipartisan concern about the Chinese-owned app and the extent of its reach in the U.S.
Digital Marketplaces: Includes the “INFORM Consumers Act,” which would require digital marketplaces like Amazon to verify information from third-party vendors and disclose it to consumers. The bill is considered a watered-down version of the SHOP SAFE Act.
Boeing 737 relief: Includes an agreement to exempt the Boeing 737 MAX 7 and 10 that have not yet entered service from a certification deadline for redesigning cockpit safety systems. Instead, Boeing will be required to retrofit certain safety features as recommended by European and Canadian regulators.
Earlier end to COVID rules: Lawmakers earned savings for other healthcare provisions by including a bipartisan agreement to move up the conclusion of the COVID-era Medicaid policy by three months, concluding in April 2023 instead of July 2023.
Healthcare: The omnibus partially stayed scheduled Medicare physician fee schedule cuts, providing for an update of 2.5 percent in 2023 and 1.25 percent in 2024. The bill also extended the alternative payment model (APM) incentive payment for certain physician and hospital groups for an additional year at a rate of 3.5 percent. The language waives statutory Pay-As-You-Go (PAYGO) cuts to Medicare and extends by two years many telehealth waivers instituted during the COVID-19 public health emergency (PHE), although the provision falls short of the push by some lawmakers to make the PHE flexibilities permanent.
ARPA-H part of NIH: The new Advanced Research Projects Agency for Health will be part of the National Institutes of Health (NIH) settling a dispute over whether the agency should be independent.
Election reform: The inclusion of a bipartisan deal to reform the 1887 Electoral Count Act will amend how the Electoral College is processed and certified by Congress and clarify that the vice president cannot overturn the election results when Congress counts the Electoral College votes.
Retirement savings: The only tax legislation included in the package is a boost to retirement savings in tax-advantaged accounts. It requires automatic enrollment in workplace savings plans, expands a tax credit for low-income savers, allows more catch-up contributions for workers nearing retirement, and includes other provisions to increase retirement savings (see below for further clarification)
Conservation easements: Another tax provision included in the larger spending bill is a measure aimed at curbing fraudulent tax shelters that result from the abuse of syndicated conservation easements.
FBI HQ compromise: The dispute between the states of Maryland and Virginia over the future location of the FBI headquarters was so contentious that the release of the omnibus text was delayed Monday night. Democratic lawmakers compromised agreeing to direct the federal government to meet with representatives from both states to hear their ideas before making a final decision on the building’s location.
Disaster relief: The bill includes $40 billion in funding to assist communities across the country recover from natural disasters, drought, hurricanes, floods, wildfires, and other matters.
Increased security for senators and former speakers: In light of increased threats against sitting members of Congress and the recent attack on House Speaker Nancy Pelosi’s husband, $2.5 million is provided for a “residential security system program” for senators. It also directs the Capitol Police to determine whether to extend protective details for former House speakers for a year, possibly longer, after they leave office.
Cosmetics regulations: Lawmakers overhauled the U.S. cosmetics regulations for the first time since the 1930s.
Lobster exemption: Maine lawmakers successfully pushed through a six-year delay of new regulations designed to prevent fishing gear from injuring and killing endangered whales, but would have destroyed the state’s lobster industry.
Military athletes can turn pro: Rolls back a provision requiring student athletes from military service academies to perform two years of active duty service before they can receive a waiver to play professional sports.
Increased NLRB funding: Increases funding for the National Labor Relations Board to $299 million. The $25 million increase is the first time legislators raised funding in nearly a decade.
What is not included:
Popular tax provisions weren’t included: Although many lawmakers held out hope until the very end, the package does not include many popular tax extenders, including the enhanced Child Tax Credit (CTC), which was a Democratic priority. Also not included are tax provisions that met with widespread support, such as R&D expensing that would allow businesses to write off their research expenses immediately, rather than over a five-year period. Also missing are tax provisions meant to address changes by the “Tax Cuts and Jobs Act” (TCJA), such as undoing the amortization requirement under Section 174, business relief from a higher interest deductibility limit, that moved to 30 percent of earnings before interest and taxes (EBIT) this year, and delaying the 100 percent bonus depreciation phaseout which drops to 80 percent in 2023. No mention is made of raising the 1099-K reporting threshold requirement from $600 and low-income housing development, “last in, first out” (LIFO), and deductions for federal broadband grant recipients.
Pandemic aid: Biden had asked for $9 billion to fight the COVID pandemic and meet emerging needs, but Congress did not add to past funding legislation in the omnibus.
Cannabis banking legislation: The bipartisan “SAFE Banking Act”, which would give the cannabis industry increased access to financial services, remains on the cutting room floor due to opposition from Senate Minority Leader Mitch McConnell.
Debt limit: With time running out, Democrats have apparently decided to table the issue of raising the debt limit until the 118th Congress. Republicans, who take control of the House on Jan. 3, will have to address this issue, which is sure to lead to a contentious showdown between the parties.
Energy permitting reforms: Senator Joe Manchin (D-WV) failed in his attempts to attach his package to overhaul permitting policy to expedite energy projects to the National Defense Authorization Act (NDAA) or the annual spending bill
Tech antitrust provisions: McConnell and other high-profile senators objected to the inclusion of the “Open App Markets Act,” which passed out of committee. The legislation aims to promote competition and reduce costs for consumers in the app market. Also not included was Sen. Amy Klobuchar’s (D-MN) American Innovation and Choice Online Act would make it illegal for large online platforms to engage in a variety of anti-competitive practices.
Support for workers: The “Pregnant Workers Fairness Act,” legislation that would expand protections for pregnant workers, was left out of the bill despite strong support from business, civic, and religious groups.
Drug sentencing disparities: A last-ditch effort to include a bipartisan agreement to narrow the sentencing disparities between crack and powder cocaine was excluded after Attorney General Merrick Garland last week directed federal prosecutors to eliminate sentencing disparities through their charging decisions.
Retirement savings plans see big changes, tax and administrative implications with SECURE Act 2.0 Provisions
As expected, Congress – with bi-partisan support – has passed legislation that will have far-reaching implications for retirement plan savings plans.
A grouping of retirement plan provisions – commonly called the SECURE 2.0 Act of 2022 (SECURE 2.0) – are included in the 2023 Consolidated Appropriations Act (also known as the Omnibus Bill) passed by Congress on December 23 and be signed by President Biden this week.
What is the SECURE 2.0 Act of 2022?
SECURE 2.0 is comprehensive legislation intended to expand and increase retirement savings, especially for low-income and part-time employees, and to simplify and clarify many complex and confusing existing retirement plan rules. It builds on the SECURE Act of 2019 (SECURE Act), which increased the age of required minimum distributions (RMDs) and eliminated age requirements for traditional IRA contributions.
The SECURE Act 2.0 expands automatic enrollment programs to help small employers sponsor plans for employees, and enhances certain credits to make saving for retirement more beneficial to both individuals and plan sponsors. It also improves individual investment options, streamlines plan administration, and makes significant changes to required minimum distributions (also known as RMDs). These changes give taxpayers more flexibility in how they use qualified retirement savings and avoid excise taxes for early withdrawals in certain cases.
History of SECURE 2.0
In March, the House passed a version of the bill, known as the SECURE Act 2. The Senate Finance Committee proposed an even larger version later this year, known as EARN Act. Neither passed, and SECURE 2.0 reflects what was ultimately agreed to by both houses of Congress.
Key provisions in SECURE 2.0
Mandatory automatic enrollment: Effective for plan years beginning after December 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.
Increased age for Required Minimum Distributions.
SECURE 2.0 increases the age for RMDs to 73, beginning on January 1, 2023, and to age 75 on January 1, 2033, for certain individuals. In addition, it reduces or entirely eliminates the excise tax imposed for not taking RMDs.
Increase in catch-up limits.
For those aged 50 or older, the retirement plan contribution limit is increased (“catch-up contributions”). For 2023, the catch-up contribution amount is limited to $7,500 for most retirement plans and is subject to inflation increases.
SECURE 2.0 provides a second increase in the contribution amount for those aged 60, 61, 62, or 63, effective for tax years after 2024. For most plans, this “second” catch-up limitation is $10,000, and $5,000 for SIMPLE plans. Like the “standard” catch-up amounts, these limitations are subject to inflation adjustments.
The annual limit on contributions to individual retirement accounts (IRAs) is also increased for participants aged 50 and older. The “catch-up” limit for IRAs is $1,000. Unlike the catch-up amount for other plans, this amount is not subject to increases for inflation under current law. The bill would make the IRA catch-up amount adjusted annually for inflation for tax years beginning after 2023.
Finally, for tax years beginning after 2023, all catch-up contributions are subject to Roth (i.e., after-tax) rules, rather than only where allowed by the plan in which the individual participates.
Penalty-free emergency withdrawals are allowed under certain circumstances.
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.
Employer matching of student loan repayments is allowed.
Effective for plan years beginning after December 31, 2023, employers can match student loan repayments as if the student loan repayments were deferrals.
Automatic rollovers rules change.
Currently, plans may automatically distribute small accounts of less than $5,000 to former participants. If the distribution is greater than $1,000, the plan must roll the account into an IRA.
Effective 12 months from enactment, SECURE 2.0 permits the transfer of default IRAs into the participant’s new employer’s plan, unless the participant affirmatively elects otherwise. SECURE 2.0 also increases the limit for automatic rollovers from $5,000 to $7,000.
Long-term, part-time workers qualify more easily.
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 December 31, 2024.
Emergency savings account deferrals allowed.
If the retirement plan allows, non-highly compensated employees can defer up to the lesser of 3% of compensation or $2,500 (post-tax) to an emergency savings account.
De-minimus incentives for participation are allowed.
Employers may offer de minimis financial incentives, such as low-dollar gift cards, to boost participation in retirement plans. The financial incentives cannot be purchased with plan assets.
Database to locate missing participants and funds is created.
SECURE 2.0 creates a national online searchable database to enable employers to locate “missing” plan participants, and plan individuals to locate retirement funds.
In short, SECURE 2.0 is a comprehensive legislative attempt to increase retirement savings and access to 401(k) and individual retirement accounts and savings, particularly for low- and middle-income workers, and those with significant student debt. It is also intended to increase the number of small businesses offering retirement plans to their workers and provide access to others who don’t yet have long-term retirement accounts.