New Laws Benefit Persons with Disabilities

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The recently passed Consolidated Appropriations Act and its SECURE 2.0 provisions address many matters of interest to older adults and persons with disabilities. Some of those provisions are summarized below. 

Notable Items in the Omnibus Spending Bill include:

  • An increase of $220 million in ACL funding over FY2022 enacted level.
  • The extension of the Money Follows the Person Medicaid demonstration and protections against spousal impoverishment for recipients of Medicaid home and community-based services through September 30, 2027. These provisions will continue the ability of a non-disabled spouse of a person receiving at-home Medicaid services to protect financial assets of at least $148,620.
  • The phasing out beginning April 1, 2023, of Medicaid continuous coverage requirements that have been in place during the COVID-19 public health emergency. In addition, the enhanced federal matching rate to states will be gradually phased out between April 1st and the end of 2023. To receive this enhanced funding, states must enact certain procedural protections for beneficiaries during redetermination. States must also report monthly on renewals and terminations related to the unwinding of continuous coverage. (For more, see ACL’s April 2022 fact sheet, Preparing for Medicaid Changes When the Public Health Emergency Expires)
  • An increase in funding from $15 million to $30 million for HUD’s Older Adults Home Modification Program.

Portions of the SECURE 2.0 act address the following:

Section 101, Expanding automatic enrollment in retirement plans. One of the main reasons
many Americans reach retirement age with little or no savings is that too few workers are offered
an opportunity to save for retirement through their employers. However, even for those employees who are offered a retirement plan at work, many do not participate. But automatic enrollment in 401(k) plans – providing for people to participate in the plan unless they take the initiative to opt out – significantly increases participation. Since first defined and approved by the Treasury Department in 1998, automatic enrollment has boosted participation by eligible employees generally, and particularly for Black, Latinx, and lower-wage employees. An early study found that adoption of automatic enrollment increased participation in a 401(k) plan by short-tenure Latinx employees from 19 percent to 75 percent. An Ariel/Aon-Hewitt study found that, in plans using automatic enrollment, “[t]he most dramatic increases in enrollment rates are among younger, lower-paid employees, and the racial gap in participation rates is nearly eliminated among employees subject to auto-enrollment.”
Section 101 requires 401(k) and 403(b) plans to automatically enroll participants in the respective plans upon becoming eligible (and the employees may opt out of coverage). The initial automatic enrollment amount is at least 3 percent but not more than 10 percent. Each year thereafter that amount is increased by 1 percent until it reaches at least 10 percent, but not more than 15 percent.
All current 401(k) and 403(b) plans are grandfathered. There is an exception for small businesses
with 10 or fewer employees, new businesses (i.e., those that have been in business for less than 3
years), church plans, and governmental plans. Section 101 is effective for plan years beginning
after December 31, 2024. 

 Section 107, Increase in age for required beginning date for mandatory distributions. Under current law, participants are generally required to begin taking distributions from their retirement plans at age 72. The policy behind this rule is to ensure that individuals spend their retirement savings during their lifetime and not use their retirement plans for estate planning purposes to transfer wealth to beneficiaries. The SECURE Act of 2019 increased the required minimum distribution age to 72. Section 107 further increases the required minimum distribution age further to 73 starting on January 1, 2023 – and increases the age further to 75 starting on January 1, 2033.

Section 124, Modification of age requirement for qualified ABLE programs. Current law
allows states to create qualified ABLE programs, which are tax-advantaged savings programs for
certain people with disabilities. Distributions from an ABLE account are tax-free if used for
qualified disability expenses of the account’s designated beneficiary. Section 124 increases the
age by which blindness or disability must occur for an individual to be an eligible individual by
reason of such blindness or disability for an ABLE program. Section 124 is effective for taxable
years beginning after December 31, 2025.

Section 325, Roth plan distribution rules. Under current law, required minimum distributions
are not required to begin prior to the death of the owner of a Roth IRA. However, pre-death
distributions are required in the case of the owner of a Roth designated account in an employer
retirement plan (e.g., 401(k) plan). Section 325 eliminates the pre-death distribution requirement
for Roth accounts in employer plans, effective for taxable years beginning after December 31,
2023. Section 325 does not apply to distributions which are required with respect to years
beginning before January 1, 2024 but are permitted to be paid on or after such date. 

Section 337, Modification of required minimum distribution rules for special needs trust.The SECURE Act placed limits on the ability of beneficiaries of defined contribution retirement
plans and IRAs to receive lifetime distributions after the account owner’s death. Special rules
apply in the case of certain beneficiaries, such as those with a disability. Section 337 clarifies that,
in the case of a special needs trust established for a beneficiary with a disability, the trust may
provide for a charitable organization as the remainder beneficiary. Section 337 is effective for
calendar years beginning after the date of enactment of this Act.