February 2, 2023
New Legislation: Everything You Need to Know About Secure 2.0 Act
The SECURE 2.0 Act of 2022 (the Act) was signed into law on December 29, 2022. This long-awaited legislation changes the landscape of retirement planning for taxpayers of all ages, with some changes taking immediate effect.
The main provisions of the Act were created to build upon the previous legislation, Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), increase overall retirement savings, streamline retirement rules, and decrease employer costs of setting up a retirement plan.
Below is a summary of the key Act provisions that may be significant to plan sponsors and their employees:
| Auto Enrollment/Auto Escalation For plan years beginning after December 31, 2024, new 401(k) and 403(b) plans must automatically enroll participants when they become eligible starting at a contribution rate of 3%; employees may opt out of coverage. |
| Saver’s Match A new “Saver’s Match” will replace the existing law’s nonrefundable “Saver’s Credit” for certain individuals who contribute to employer retirement plans. The match is effective for tax years beginning after 2026 and will have an income related phase out. |
| Required Minimum Distributions (RMDs) Effective January 1, 2023, RMD age increased from 72 and in 2033, the RMD age will increase to 75. Roth accounts will be exempt from the RMD rules while the participant is alive, effective beginning in 2024. The mandatory distribution threshold will increase from $5,000 to $7,000 after December 31, 2023. The penalty for failing to take an RMD will decrease to 25% of the RMD amount, from 50% currently, and 10% if corrected in a timely manner for IRAs. |
| Catch-Up Contributions All catch-up contributions must be Roth contributions for participants with compensation equal to or greater than $145,000, effective beginning in 2024. The catch-up contribution limit will increase for taxable years beginning after December 31, 2024. |
| Student Loan Payments Employers may make matching contributions under a 401(k) or 403(b) plan on employees’ qualified student loan payments, effective for plan years beginning after December 31, 2023. |
| Emergency Expenses Withdrawals and Pension Accounts The Act calls for an exception from the 10% tax on certain early distributions made after the 2023 year that are used for certain emergency expenses, limited to 1 distribution per year up to $1,000 and subject to repayment within 3 years. Pension plans may include an emergency savings account for non-highly compensated employees beginning in 2024. Employers may elect to automatically include their employees in these accounts, and only after-tax contributions are permitted. |
| Retirement Plan Overpayments Effective immediately, retirement plan fiduciaries have the discretion to not recoup overpayments mistakenly made to retirees. Rollovers of the overpayments remain valid. |
| Retirement Savings Lost and Found The Act directs the creation of a national online searchable lost and found database for Americans’ retirement plans at the Department of Labor (DOL) no later than 2 years after the date of enactment of this Act. |
| Compliance Testing and Corrections The Act includes various changes to the rules for top-heavy plan testing. The IRS Employee Plans Compliance Resolution System will allow more types of errors to be fixed internally through self-correction and will allow for a penalty-free grace period to correct reasonable errors related to automatic enrollment and automatic escalation features. |
| 403(b) Plans The Act applies the current hardship distribution rules for 401(k) plans to 403(b) plans. 403(b) plans will now be allowed to invest in collective investment trusts, and beginning in 2023, 403(b) plans can join a multiple employer plan or pooled employer plan. |
| Annual Audits for Groups of Plans The Act clarifies that each plan filing within a group of plans that was added by the SECURE Act, is required to submit audited financial statements if it has 100 or more participants. |
Each provision has a specific effective date in accordance with the Act, which Plans must operate under; however, required Plan amendments generally need not be made until the end of the first plan year beginning on or after January 1, 2025.
The Act includes over 90 new provisions and employers should consult with appropriate legal counsel and other financial professionals to assess what changes may be relevant for their organizations.
If you have questions about the Act and how the legislation affects your plan, Johnson Lambert can provide assistance.
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As members of the AICPA Employee Benefit Plan Audit Quality Center, we are committed to providing our clients with the highest quality of service. For more than 35 years, we have developed a niche focus to become experts in the unique aspects of employee benefit plan audits.
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