Retirement Plans: SECURE 2.0 Act of 2022 Plan Provisions to Pay Attention to Now
The SECURE Act of 2022 (“SECURE 2.0”) was passed by Congress and signed into law by President Biden on December 29th, 2022. The law contains 92 provisions, many of which are designed to expand retirement savings and coverage and simplify retirement plan rules. A number of these provisions will serve as the foundation for new plan formation among small businesses and may propel overall increased participation and savings rates.
Some of the provisions are effective immediately, or in 2023, while other provisions are effective in 2024 and later years. Some provisions require regulations and guidance that will be issued in the future.
In this article, we highlight a few key provisions which are either effective immediately or, may require changes to administration or systems now.
1. Increase in Age for Required Minimum Distributions
The Required Minimum Distribution age has been increased to age 73 beginning on January 1, 2023 and age 75 starting on January 1, 2033.
2. Employee Certification of Hardship Distribution Conditions
Participants may self-certify that they have met the qualifications for a hardship withdrawal. This significantly lessens the administrative burden for plan sponsors. This provision is effective for plan years beginning after the date of enactment of SECURE 2.0.
3. Expanding Automatic Enrollment in 403(b) and 401(k) Plans
Automatic enrollment will be a mandatory feature for all new 403(b)/401(k) plans established after December 29, 2022. Certain employers are exempt, including governmental, church, and employers with fewer than 10 employees. Existing plans are This provision is effective for plan years beginning after December 31, 2024.
4. Expanded Coverage for Long-Term Part-Time Employees in 403(b) plans
Employees who work 500 or more hours per year for two consecutive years must be eligible to participate (elective deferrals only) in a retirement plan. This provision is a new requirement for 403(b) plans and modifies the SECURE Act requirement applicable to 401(k) plans. Guidance will be needed on how this provision impacts the current 403(b) plan universal availability rules. While not effective until plan years beginning after December 31, 2024, schools need to have procedures in place to track employee hours now.
5. Withdrawals for Certain Emergency Expenses
The 10% additional tax applicable to early distributions from retirement plans will be waived for withdrawals for unforeseeable emergency expenses. This will apply to one distribution of up to $1,000 annually. Participants will also have the option to repay the distribution within three years. Only one distribution per three-year repayment period is
permitted if a distribution has not been fully repaid. This optional provision is effective for distributions made after December 31, 2023.
6. Catch-up contributions must be Roth
Elective deferral catch-up contributions to qualified and 403(b) retirement plans must be designated as Roth contributions, except for employees with compensation of $145,000 or less (indexed). Effective for taxable years beginning after December 31, 2023.
7. Employer contributions as Roth
DC plans may give participants the option to receive school contributions on a Roth basis. The employer Roth contribution must be 100% vested immediately. This is an optional plan provision and effective immediately.
Plan sponsors should discuss with their plan advisor/vendors on how best to implement the mandatory plan provisions and whether to adopt optional provisions. For additional information and updates regarding SECURE Act 2.0, visit Pentegra’s SECURE Act of 2022 Resources page
FOR RETIREMENT PLAN SPONSOR AND ADVISOR USE ONLY. THIS MATERIAL IS PROVIDED SOLELY FOR INFORMATIONAL PURPOSES AND DOES NOT CONSTITUTE INVESTMENT, TAX, LEGAL, OR ACCOUNTING ADVICE ON THE MATTERS ADDRESSED.