The SECURE Act 2.0 (“Securing a Strong Retirement Act of 2022”) aims to expand coverage of employer-sponsored plans and increase retirement savings, as well as simplifying and clarifying rules. With suitable modification it offers an attractive vehicle for addressing one of the most severe problems facing expats: access to savings vehicles and retirement plans.
The bill passed the House on March 29 and has moved to the Senate, where the Finance Committee will process it. It has bipartisan support and prospects for passage before the end of the year are thought to be good. Modifications needed to extend effective coverage to expats are fully within the spirit and intention of the bill. If the Senate version can be modified appropriately there should be no problems of reconciliation with the House bill.
Three main issues need to be addressed and solutions incorporated in the bill:
- Expats need access to retirement plans where they live and work. The issues here are summarized well by the GAO in “Workplace Retirement Plans” [GAO-18-19], pp.12-14. The U.S. tax code needs to be modified to end the punitive treatment of savings vehicles and retirement plans outside the United States, i.e. essentially anything requiring Forms 8621 (PFICs) or 3520 (foreign trusts). Extending the Foreign Earned Income Exclusion regime (along the lines of HR. 6057, i.e. the Beyers bill) to exclude foreign retirement plans and long-term savings vehicles from U.S. taxation, leaving the plans to be governed by host country law, would be one good approach.
- Expat savings and retirement plans established in the U.S. before expatriation are difficult to retain. Middle-aged and elderly Americans moving abroad have frequently faced account closure, asset liquidation, restrictions on activity or excessive fees relating to U.S. retirement plans (including IRAs) and accumulated savings held in them. Changes in residence are normal elements of a person’s life cycle and should not threaten the whole of an investor’s life savings. The SECURE Act’s measures to expand coverage of retirement plans need to be supplemented with measures which, absent probable cause relating to illicit activity, protect against liquidation or abusive restrictions.
- Many expats need access to U.S.-based savings vehicles to accumulate retirement assets. Younger expats and others American by birth but who have not lived in the United States have few options for retirement planning. Punitive U.S. tax treatment effectively prohibits saving accumulation outside the U.S. so U.S.-based options are needed. But anti-money laundering policy deems expats high risk, hence unattractive as customers to U.S.-based asset managers. Furthermore, young expats usually have few assets and are of little interest to the few fee-based U.S. asset managers who accept better-off expats as clients. Elements of the SECURE ACT designed to expand coverage of various plans should be extended to assure expat access to at least basic savings vehicles such as U.S. mutual funds.