SECURE Act 2.0

Important Changes, Now and Later

At the end of December 2022, President Biden signed the 2023 Consolidated Appropriations Act, which contains significant changes to employer-provided retirement plans. One of these changes is the modification and expansion of the 2019 SECURE Act (Setting Every Community up for Retirement Enhancement) – called the SECURE Act 2.0.

This article highlights the main impacts and changes in SECURE 2.0, in chronological order of their effective dates. (Please note, we did not include reference to SIMPLE or SEP plan changes.)

NOW (2023):

  • Your plan can be designed to rely on the employee’s written certification that the hardship distribution rules apply to his/her situation (no supporting documentation required to be submitted and reviewed/approved) 

  • Retroactive sole-proprietor deferrals are allowed, limited to unincorporated sole proprietor with no employees 

  • Participant can elect his/her vested employer contributions be made as Roth 

  • Small financial incentives, such as a gift card, to encourage employees to participate in the 401(k) plan 

  • 403(b) plans can invest in collective investment trusts 

  • Required Minimum Distribution age increases from age 72 to age 73 

  • Reduced penalties apply if participant failed to take his/her RMD timely 

  • Qualified Birth and Adoption Distribution repayments are now limited to three years, beginning on the day after distribution was received 

  • The early distribution penalty of 10% will not apply to emergency personal expense distributions,  withdrawal for domestic abuse victims, or distributions to a terminally ill participant 

  • Plans that offer eligibility sooner than statutory requirements (age 21, one year of service) can carve out those employees into a separate group for providing top heavy minimums (if your plan is not safe harbor) 

  • Disclosures are not required to be provided to unenrolled participants other than an annual reminder notice  

PLAN YEARS AFTER 2023:

  • Student loan repayments can be matched like deferrals 

  • A new type of plan, called a “Starter 401k Plan” will be offered.  No testing is required.  Only deferrals are allowed and are capped at $6,000. 

  • 403(b) plans can make hardship distributions 

  • Plans can establish an “Emergency Savings Account” limited to after-tax contributions made from non-highly compensated individuals (IRS’ definition of highly compensated) 

  • Catch-up contributions for participants whose prior calendar year FICA wages exceeded $145,000 must be made as Roth contributions, not pre-tax 

  • Mandatory force-out threshold increases from $5,000 to $7,000 

  • Qualified long-term care distributions are allowed 

  • Retroactive amendment allowed to retroactively increase benefits or non-elective employer contributions as long as it is signed by the extended tax return due date (doesn’t apply to matching contributions) 

     

PLAN YEARS AFTER 2024:

  • Individuals who are between the ages of 60 through 63 will be allowed to contribute a catch up equal to the greater of (a) $10,000 or (b) 150% of the catch-up amount in that year 

  • New 401(k) and 403(b) plans are required to have automatic enrollment features starting at 3% of pay 

  • Long-term Part-Time Employees who have two consecutive eligibility computation periods with 500 to 999 hours of service and attained age 21 must be allowed to participate in the plan  

  • Mortality tables will be updated by IRS for Defined Benefit Plans 

  • Annual Funding Notices will have additional language to include (Defined Benefit Plans only) 

PLAN YEARS AFTER 2025 & 2026:

  • One annual paper statement must be provided to participants for defined contribution plans (DB plans remain at one annual statement every three years). (after 2025) 

  • A Saver’s Match on certain qualified retirement contributions are matched by the Secretary of the Treasury as soon as practicable after employee has filed a tax return (after 2026) 

As you can see, the changes are broad and sweeping.  You can expect more information from us in the coming weeks as more guidance and clarification of the law becomes available. In the meantime, we encourage you to consider your plan and your employees. What optional features are you interested in adding to your plan? We suggest you focus on the features effective now and next year first. 

A good starting point is consideration of the new hardship distribution rules.  If you do not offer hardship distributions, do you want to allow now that the burden of proof and approval is no longer an employer’s responsibility?  Or, if you already offer this feature, do you want to continue to require a participant to submit proof of the hardship?  It is important to note that if you decide to allow an participant to self-certify, if you have knowledge to the contrary, it is your responsibility to disallow the distribution.  More guidance is needed from IRS on this matter.  Unless we hear from you to the contrary, we will continue to require participants to submit proof of financial hardship.