Hunter Benefits Consulting Group



Secure 2.0 Is Back Again!

by Webmaster

 by Kelsey Mayo 

Partner, Poyner Spruill

 Kelsey’s practice is focused in the areas of Employee Benefits and Executive Compensation. She works with business owners and HR executives to understand and manage employee benefits and executive compensation arrangements. She routinely represents clients before the Internal Revenue Service, Department of Labor, and Pension Benefit Guarantee Corporation and has extensive experience in virtually all aspects of employee benefit plans and executive compensation arrangements. 

December brought a lot of excitement. Among the fun: Hannukah for some, Christmas for some, and a ghost from months past for all — SECURE 2.0! The Act was included in Congress’s year-end spending bill and contains more than 90 retirement-related provisions. The Act will have a number of wide-ranging impacts on the retirement industry, including those summarized below.

Required Provisions

Require auto enrollment and autoescalation for new defined contri- bution plans. Nearly all 401(k) and403(b) deferral plans establishedafter the Act is enacted, will haveto satisfy auto-enrollment and auto-escalation requirements nolater than the plan year beginning in 2025. Small employers with 10 or fewer employees, businesses less than three years old, church plans, and governmental plans generally will be exempt from this requirement.

Reduce the service required for long-term part-timeemployees. The SECURE Act requires that long-term,part-term employees — those who work at least 500hours in 3 consecutive years — be permitted to defer to the 401(k) plan. This bill will reduce this to 2 years, effective with the 2025 plan year and will also require 403(b) plans to comply.

Roth Catch-Up Contributions. Beginning in 2024,catch-up contributions must be made on a Roth-basisfor employees with compensation of at least $145,000in the prior year.

Birth or Adoption Distributions. Individuals who takea qualified birth or adoption distribution can only repaythe distribution within 3 years of the distribution. Transition rules apply to QBADs already made.

Retirement Lost and Found.DOL must create a nationaldatabase of employee benefitamounts to allow employeesto track benefits across employers and aid employers infinding lost participants. Plan sponsors will have a newreporting obligation for the 2025 plan year (two yearsafter enactment).

Lump Sum Window Disclosures. For pension plansthat are amended to offer a lump sum window in thefuture, new disclosure and reporting to DOL and PBGCwould apply. This wil likely apply some time after January 1, 2025.

Update to related company rules. For plan years beginning after December 31, 2023, SECURE 2.0 modifies the rules for determining whether companies are related for plan purposes. This is particularly applicable to business owners living in community property states and business owners with children under age 21.

Optional Design Provisions 

RMD Changes. While changes to required minimum distributions typically are adopted almost universally, plan sponsors do have the option to retain current rules that force out benefits sooner. You may, however, adopt the following changes: 

o Increase the RMD age. SECURE 2.0 increases the RMD age to 73 in 2023 and age 75 in 2033. 

o No RMD from Designated Roth. Designated 

Roth accounts will not be required to pay minimum distributions during the participant’s lifetime. 

o Surviving Spouse. Surviving spouse can elect to be treated as the participant for RMDs. 

Increase the Cashout Limit. The mandatory cashout limit will be increased from $5,000 to $7,000, effective for distributions made after December 31, 2023. 

Additional Catch-ups. Beginning in 2025, a plan may offer higher limit on catch-up contributions for years a participant attains age 60, 61, 62, and 63. The limit in those years may be the greater of: (1) $10,000 or (2) 50% of the 2024 regular catch-up limit. This new limit is indexed for years after 2025. 

Revisions to in-service withdrawals. The bill makes a number of optional changes to in-service withdrawals, including: 

o Withdrawals for personal emergency expenses, with limits on the amount and frequency. 

o Withdrawals in the case of domestic abuse (these also are excepted from the 10% early withdrawal penalty). 

o Distributions of up to $22,000 to individuals impacted by federal disasters, effective for disasters occurring on or after January 26, 2021. Also permits repayment of certain prior distributions. 

In addition, the bill ensures the plan administrator may rely on an employee’s certification that the employee meets the hardship distribution requirements (essentially a codification of current IRS guidance). 

Provide small incentives for participation. Plan sponsors will be able to provide small financial incentives (not from plan assets) to induce employees to contribute to the 401(k) plan. 

Extend time to adopt discretionary amendment. Plan sponsors may adopt a discretionary amendment for the immediately preceding plan year no later than the plan sponsor’s tax return due date if the amendment is increasing benefits other than matching contributions. Effective beginning with the 2024 plan year. 

Permit treatment of student loan payments as deferrals for matching contributions. Plans will be permitted to match an employee’s student loan payment and treat it as an employer matching contribution, beginning with the 2024 plan year. Currently loan payments can be matched by a plan, but this changes the treatment for nondiscrimination testing. 

Offer NHCEs pension-linked emergency savings accounts. Plans may offer non-highly compensated employees after-tax emergency savings accounts with flexible in-service withdrawals. 

Permit treatment of employer contributions as Roth. Plans may offer employer contributions on a Roth basis. Currently, employer contributions must be pre-tax only, although the plan could then offer a Roth conversion. 

Top Heavy Modification. Beginning in 2024 taxable years, employees who do not meet the minimum age and service requirements under the Code may be excluded in determining whether a plan satisfies the top-heavy minimum contribution requirement. 

Provisions Related to Plan Notices 

Reduce notices to unenrolled participants. Plan sponsors will be able to provide fewer notices to employees who elect not to participate. 

Paper Statements Required. The bill will require one paper benefit statement per year for participants who are not “wired at work.” 

Annual Funding Notice. The bill changes the content requirements for pension plan annual funding notices. 

Provisions Related to Plan Corrections 

• Expands the self-correction program to inadvertent significant errors, without time limit. 

• Restricts the ability to recover overpayments (preventing recovery in many instances) — particularly with respect to recovery from annuity recipients. 

• Provide a new favorable correction of employee automatic enrollment errors. 

• Reduced penalties for missed required minimum distributions (RMDs). 

What’s next? These changes will impact every plan. Work with your trusted TPA partner and ERISA counsel to determine how and when these provisions will impact your plan. 

More questions about Secure 2.0? Contact us and ask any questions you may have!