It’s official – the SECURE 2.0 Act (the Act) has been signed into law! In a nutshell, the Act represents a package of retirement reform that will have widespread implications for the industry and will increase the savings potential for many Americans. The passing of the Act is certainly welcome for many retirement plan service providers. Voya Financial, one of the country’s largest retirement plan recordkeepers, stated in an email,
“SECURE 2.0 will make a number of important changes to help working individuals save more for retirement and increase their access to workplace retirement plans.”
Similarly, Vanguard, another large retirement service provider, wrote:
“This landmark legislation makes it easier for participants to save for their future by broadening Americans’ access to the retirement savings system…”
Here is an in-depth look at the more significant provisions and their impact on the retirement plan world. Plan sponsors and advisers should be aware of the various time frames for each specific provision and how to manage them accordingly.
Effective Prior to January 1, 2023
- Disaster Relief Withdrawals – Participants may withdraw up to $22,000 to pay for natural disaster-related expenses. These would be taxed as gross income over three years without additional penalty. This provision applies to disasters occurring on or after January 26, 2021, for DC plans and IRAs.
- Employee Plans Compliance Resolution System (EPCRS) – Except as otherwise provided in authoritative guidance, most inadvertent plan failures may be self-corrected under the EPCRS without a submission to the IRS. This provision applies to DC plans, DB plans, and IRAs, and is effective December 29, 2022.
- Employer Matching and Nonelective Contributions (as Roth) – Plans may choose to allow vested participants to elect to receive employer matching and nonelective contributions as Roth contributions. This provision applies to DC plans and governmental 457(b) plans and is effective on or after December 30, 2022.
Effective for Plan Years Beginning on or After January 1, 2023
- Employee Self-Certification of Hardship Withdrawals – Plan sponsors may rely on employee certification that deemed hardship withdrawal conditions have been met. This provision applies to DC plans.
- Elimination of Most Ongoing Notices for Non-Participants – Plans are permitted to exclude unenrolled participants from certain ongoing required notices. An annual reminder of the participant’s eligibility to participate is still required annually. This provision applies to DC plans.
- Increase in Ages for Required Minimum Distributions – Increase in age to age 73 for those turning 72 on or after January 1, 2023; increased to age 75 for those turning 74 on or after January 1, 2033. This provision applies to DC plans, DB plans, and IRAs.
Effective for Plan Years Beginning on or After January 1, 2024
- Student Loan Matching – Employers can treat student loan payments of eligible employees as if they are elective deferrals to make matching contributions. Things to consider include matching contributions must follow the same matching formula as that for regular deferrals, employee self-certification is permitted, separate ADP testing is allowed, and the IRS is directed to issue regulations allowing the match to be made at a different frequency than the match on deferrals. This provision applies to DC plans, SIMPLE IRAs, and governmental 457(b) plans.
- 403(b) Plan Hardship Withdrawals – 403(b) plans may allow employer contributions and earnings for hardship withdrawals.
- Personal or Emergency Withdrawals – Participants will be permitted to withdraw up to $1,000 in one withdrawal per year without an early-withdrawal tax penalty. There will be an option to repay the amount in three years. This provision applies to DC plans and IRAs. Employers can also offer a retirement plan-linked emergency savings account (maximum $2,500) that would allow four penalty-free withdrawals per year. This provision applies to DC plans only.
- Extension of IRS Safe Harbor Protection for Inadvertent Auto-Enroll Errors – Permanent safe harbor protection is in place provided the errors are corrected, without penalty, by the earlier of a) 9 ½ months after the plan year or b) the first compensation payment date on or after the last day of the month following the month in which the employer is notified of the error. Employers must also make up for missed matching contributions. This provision applies to DC plans.
- Catch-up Contributions for Compensation in Excess of $145,000 – Catch-up contributions for participants whose compensation is more than $145,000 must be made as Roth contributions. This provision applies to DC plans and is effective for taxable years on or after January 1, 2024.
Effective for Plan Years Beginning on or After January 1, 2025
- Increase in Catch-up Contributions – For all plans except SIMPLE plans, for individuals ages 60-63, catch-up contributions will be increased to $10,000 or 150% of the regular catch-up amount for those aged 50 and over, whichever is greater. The limit is $5,000 for SIMPLE plans. This provision applies to DC plans and is effective for taxable years on or after January 1, 2025.
- Long-Term, Part-Time Eligibility – Employees with at least 1,000 hours of service in a one-year period or 500 service hours per year in a two-consecutive-year period are eligible to participate in their employer’s retirement plan. This provision applies to 401(k) and 403(b) plans.
- Mandatory Auto-Enrollment and Escalation – New 401(k) and 403(b) plans will be required to use automatic enrollment with an employee pre-tax contribution of at least 3% of compensation, but not more than 10%. The default contribution would then increase annually by 1%, up to a minimum of 10% and maximum of 15% of pay. Participants may override this by affirmatively electing a different contribution amount or opting out altogether. The mandatory automatic enrollment will not apply to existing plans. In addition, small businesses, new businesses, and church and government plans are exempt from this provision.
Effective for Plan Years Beginning on or After January 1, 2026
- Annual Paper Statements – Unless a participant elects otherwise, DC plans must provide one paper statement annually and DB plan must provide one paper statement every three years.
Please contact us if you have questions about the information outlined above, our seasoned and experienced employee benefit plan professionals are here to help. You can also learn more about our Employee Benefit Plan Audit services by visiting our website.