On Dec. 29, 2022, President Biden signed the Consolidated Appropriations Act, 2023. It includes the much anticipated Setting Every Community Up for Retirement Enhancement (“SECURE”) 2.0 changes, as well as several other important retirement plan enhancements. The following is a high-level summary of some changes that will have the greatest impact on retirement plans. If you would like to discuss any specific items or provisions, reach out to us individually for a consultation.
This Act contains more expansive retirement plan updates than in recent history, exceeding its predecessor SECURE 1.0 and surpassing the predictions of retirement plan experts. Many of the provisions will not take effect for several years, which is helpful because it will take time for providers and plan sponsors to absorb the full impact of the changes and to update various systems and processes. We put what we believe as the most interesting and relevant changes at the top of this list:
Start-up Costs Tax Credit
Increase in the tax credits to cover 100% of the cost for start-up retirement plans with up to 50 people. Clarifies the credit is available to employers joining an existing plan, such as a MEP or PEP. Effective retroactively for Plan Years beginning after Dec. 31, 2019.
Provides for an additional hardship type withdrawal of up to $1,000 per year for emergency savings as well as the addition of a “side-car” emergency savings account. Effective after Dec. 31, 2023.
Age for Required Minimum Distributions Beginning Date
SECURE 2.0 has increased the age for the required beginning date for Required Minimum Distribution (RMDs) to:
- Age 73 for a person who attains age 73 before Jan. 1, 2033
- Age 73 for a person who attains age 72 after Dec. 31, 2022
- Age 75 for an individual who attains age 74 after Dec. 31, 2032
Effective for distributions made after Dec. 31, 2022.
Paper Delivery of Statements
One paper statement must be delivered per calendar year with an exception for plans who allow participants to opt in rather than opt out of e-delivery. Effective for Plan Years beginning after Dec. 31, 2025.
Automatic Enrollment for New 401(k) and 403(b) Plans
An automatic contribution arrangement will be required for all 401(k) or 403(b) new plans. This includes any participating employers joining an existing Multiple Employer Plan (MEP). Generally applies for Plan Years beginning after Dec. 31, 2024. You should note that the Advantage PEP plan is already compliant with this provision.
Approval of Employer Match on Student Loan Payments
This bill codifies the ability of retirement plan sponsors to provide a company match based on student loan payments. Effective for Plan Years beginning after Dec. 31, 2023.
Reduction of Long-term Part-time Employee Period of Service
SECURE ACT 1.0 required that long-term part-time employees be included in retirement plans for salary deferral purposes if the employee works 500 hours in a consecutive three-year period. SECURE 2.0 reduced the years from three years to two years and extended this requirement to 403(b) plans. Generally effective for Plan Years beginning after Dec. 31, 2024.
Creates a new deferral-only 401(k) plan. Effective for Plan Years beginning after Dec. 31, 2023. If you want a good option for a startup 401(k) plan, reach out to us to discuss the Advantage 401k PEP
Retirement Plan Lost and Found
Requires the Department of Labor (DOL) to create a searchable database where retirement plan participants can look for “lost” retirement plan assets. Must be completed within two years after the enactment of SECURE 2.0.
Prohibited Transaction Exemption (PTE) for compensation received in connection with automatic rollovers to new employer’s plan
Directs the DOL to create a new PTE permitting small balances to be cashed out to new employer’s plan for terminated participants. Effective one year after the date of enactment of SECURE 2.0.
Amends the PEP rules to allow the plan to designate any named fiduciary, except for a participating employer, to be responsible for contributions collection. Effective for Plan Years beginning after Dec. 31, 2022.
MEPs and PEPs for 403(b) Plans
Expands SECURE Act 1.0 provisions to include Pooled Employer Plans (PEPs) and officially opens MEPs to 403(b)s. Effective for Plan Years beginning after Dec. 31, 2022.
Group Plan Audits
Annual financial audits for “Group of Employer Plans” are not to be conducted on the trust level, but when required should be conducted at the employer level instead. Effective upon enactment of SECURE 2.0.
Changes Impacting Non-discrimination Testing
Allows otherwise excludable employees, for example under age 21 and under a year of service, to be tested separately for top-heavy testing, and changes family attribution rules affecting controlled group determinations. Effective for Plan Years beginning after Dec. 31, 2023.
Expansion of the Employee Plans Compliance Resolution System (EPCRS)
Further codifies and expands EPCRS allowing eligible inadvertent failures to be corrected at any time with certain exceptions. Effective upon enactment of SECURE 2.0.
Collective Investment Trusts (CITs) for 403(b) Plans
Amends the Code to explicitly allow 403(b) plans with custodial accounts to invest in collective investment trusts. The federal securities law exemptions for investment in CITs by 403(b) plans were not included in SECURE 2.0. Effective upon enactment of SECURE 2.0.
In addition to the changes listed above, the Act requires the DOL to conduct a number of studies including one on required disclosures, PEPs, and the impact of inflation on retirement plans. Also, for the first time there will be federal funding to provide a direct Savers Match, rather than a credit, for low-income individuals. More details will be released over time by the regulatory agencies, and plan documents will need to be amended to provide for the new services and updates. However, the passage of such sweeping changes to retirement plans seem to indicate a commitment by the federal government to the modernization and enhancement of the existing retirement plans system.
As always, please reach out to our office to discuss your current plan and any of these provisions.