On December 23, President Joe Biden signed into law a $1.7 trillion omnibus appropriations bill that will fund the federal government through the end of the fiscal year on September 30, 2023.
Unlike continuing resolutions, which effectively keep the lights on by extending existing funding levels, omnibus appropriations shape policy by changing funding allocations for federal agencies, departments, and programs. Notably, the FY23 appropriations package increases funding for several programs under the Department of Education. It also contains important retirement legislation with implications for higher education fundraising and human resources offices, and it extends subsidy payments on Build American Bonds (BAB) through 2024.
While falling somewhat short of requests by the higher education community and priorities in Biden’s FY23 budget request, the legislation will increase funding for a variety of programs. It—
- Increases the maximum Pell Grant award by $500, amounting to $7,395 for the upcoming award year.
- Provides more than $1 billion in aid to Historically Black Colleges and Universities and other Minority-Serving Institutions, an increase of $137 million.
- Increases Federal Supplemental Educational Opportunity Grant Program funding to $910 million, an increase of $15 million.
- Provides the TRIO and GEAR UP Programs with $1.2 billion and $388 million, respectively, increases of $54 million and $10 million.
The legislation contained retirement legislation, known as SECURE 2.0, that builds on the Setting Every Community Up for Retirement Act of 2019 (SECURE) with broad changes to retirement plans and requirements for individuals and employers. Notable for higher education administrators are changes to the IRA charitable rollover.
The Modified Legacy IRA Act, which builds on the IRA charitable rollover that was enacted in 2006, facilitates charitable giving among seniors by allowing individuals, starting at 70.5 years old, to make a one-time, tax-free IRA rollover of up to $50,000 to a split-interest entity such as a charitable gift annuity or charitable remainder trust. The legislation also ties the maximum allowable gift to inflation. This essentially reduces the age at which an individual can contribute to such a plan and increases the maximum allowable gift.
The new legislation also makes changes that are particularly notable for human resources professionals. It—
- Allows employers to treat student loan payments as retirement contributions for the purpose of matching an employee’s contribution to a funded plan.
- Requires that employers, with some exclusions, automatically enroll employees in 401(k) or 403(b) plans.
- Allow employees under 59.5 years old to withdraw up to $1,000 from a retirement account to pay for emergency expenses without incurring the 10 percent tax penalty for early withdrawal.
Build America Bonds
The federal subsidy payments in the Build America Bonds (BAB) Program were included in the omnibus package, which was one of the higher education tax issues that NACUBO and other higher education associations urged Congress to address in a letter earlier this year.
BABs provide a 35 percent subsidy from the federal government for the lifetime of the bond to cover a percentage of interest costs for projects, including school construction, water and sewer improvements, hospital and other health-care system upgrades, and highway and mass transit investments, among other things.