At a Glance
Main Takeaway
The SECURE 2.0 Act of 2022 (the “Act”) was signed into law by President Biden on December 29, 2022. The Act includes several provisions related to retirement plans, including:
- Expanded coverage of participants,
- income preservation for participants; and
- provides administrative procedures and simplified plan rules.
Next Step
Plan administrators, sponsors, and advisors should take note of changes in several provisions as some become effective immediately, while others become effective later in 2023 or after. The following summary includes highlights from the Act. It is not intended to be exhaustive. For more details, please contact our Employee Benefits Services professionals.
Increasing Retirement Savings and Expanding Participant Coverage
- For newly established 401(k) and certain 403(b) plans, an eligible automatic contribution arrangement is required
For plan years beginning after 2023, new 401(k) and 403(b) plans (with limited exceptions) must provide for automatic enrollment for eligible participants who do not opt-out and set a 3% minimum and 10% maximum contribution rate. An automatic escalation feature that increases employee contributions at a rate of 1% per year up to 15% of compensation is required. Participants may make withdrawals no later than 90 days after the date of their first contribution.
- Age increase for Required Minimum Distributions (RMDs)
Effective for distributions after December 31, 2022, for individuals attaining age 72 after that date. Participants and spousal beneficiaries of participants who die before their RMD beginning date are subject to the following schedule:
Age 73
Individuals Impacted: A person who reaches age 72 after December 31, 2022
Age 75
Individuals Impacted: A person who reaches age 74 after December 31, 2032
- Reduced excise tax from 50% to 25% for late RMDs
Effective for tax years after December 31, 2022, RMDs that are not taken on time are subject to a 25% excise tax under the Internal Revenue Code.
- Catch-up limits increased at ages 60, 61, 62, and 63
For tax years beginning after December 31, 2024, age-based catch-up limits for non-SIMPLE plans increase to the greater of $10,000 or 150% of the regular age-50 catch-up amount in 2025 (indexed for inflation) for participants who have reached ages 60, 61, 62, and 63.
- For certain highly paid employees, age 50+ catch-up contributions are only made as Roth contributions
For tax years beginning after December 31, 2023, the age 50+ catch-up may only be contributed as a Roth contribution if the participant’s wages subject to FICA in the prior year were more than $145,000 (subject to cost of living adjustments in $5,000 increments).
- Matching contributions for student loan payments will be treated as elective deferrals
For plan years beginning after December 31, 2023, employers may match “qualified student loan payments” (QSLP). Said match would have to be made to all match-eligible participants and at the same rate as match contributions on elective deferrals.
- Personal withdrawal for emergency expenses
Effective after December 31, 2023, an individual can make a single withdrawal per year, up to $1,000, from either a plan or traditional IRA for an unanticipated personal need or household emergency that complies with IRS regulations. The distribution would not be subject to the 10% IRS early withdrawal penalty. Repayment must occur within 3 years; otherwise, another distribution may be limited until it is repaid.
- Coverage for long-term part-time workers
For plan years beginning after December 31, 2024, the eligibility period for long-term part-time employees to become eligible to make deferrals to a workplace retirement plan has been reduced from three consecutive 12-month periods having been credited with at least 500 hours in each year to two consecutive 12-month periods. Pre-2021 service is disregarded for eligibility and vesting.
- Defined contribution plans with emergency savings accounts
For plan years beginning after December 31, 2023, non-highly compensated participants may be able to contribute up to $2,500 to an emergency savings account in a defined contribution plan. Participants are automatically enrolled at a maximum rate of 3% of their eligible compensation to be made as a Roth contribution. There will be no fees or charges for the initial four withdrawals per plan year, and any unused amounts are portable.
- Increased dollar amount for a mandatory distribution (“Cash-out”)
Effective for distributions made after December 31, 2023, the dollar amount to which a plan can authorize an involuntary cash out of a terminated participant’s vested account without the participant’s consent increases from $5,000 to $7,000.
- Repayment of Qualified Birth or Adoption Distributions (“QBADs”) is limited to three years
Effective for QBADs made after December 29, 2022, a participant may repay the QBAD within three years of the distribution to an eligible retirement plan accepting rollovers in order to qualify as a rollover contribution.
- Employees’ self-certification of hardships and unforeseeable emergency withdrawals
Effective for plan years beginning after December 31, 2022, a plan administrator can rely on an employee certification that a hardship withdrawal is based upon an immediate and heavy financial need, as described in the Treasury regulations, and that the amount requested is not more than is necessary to satisfy the financial need.
- In cases of domestic abuse, withdrawals from retirement plans are not subject to penalties
Effective December 29, 2022, participants self-certifying domestic abuse may withdraw (the lesser of $10,000, indexed for inflation, or 50% of their account) without paying the 10% early withdrawal penalty. A participant is also given the option of repaying the distribution over three years and will be refunded income taxes on the money repaid.
- Unnecessary plan disclosures eliminated for unenrolled participants
For plan years beginning after December 31, 2022, as long as a participant has received a summary plan description and other documents related to plan eligibility, a plan is not required to provide disclosures or notices to employees who are eligible to participate, but have not enrolled in the plan, other than an annual reminder notice of the participant’s eligibility to participate in the plan and applicable deadlines, as well as any required documents upon a participant’s request.
- Distribution rules for Roth plans
Effective for taxable years starting after December 31, 2023, the pre-death distribution requirement for a Roth-designated account in employer-sponsored plans is eliminated, aligning the employer plan rule with Roth IRAs. This will not apply to distributions required for years starting before January 1, 2024.
- A survivor’s spouse may elect to be treated as an employee (for the purpose of RMDs)
For calendar years starting after December 31, 2023, if a participant passes away before reaching his Required Beginning Date and has designated his spouse as the primary beneficiary, the surviving spouse may elect to be treated as the diseased participant for the purpose of the RMD distribution.
- Special rules for retirement funds after a federally declared disaster
Effective for disasters occurring on or after January 26, 2021, the Act provides permanent rules relating to the use of retirement funds from qualified plans and 403(b) arrangements in the case of a federally declared disaster.
- Rules for hardship withdrawals from 403(b) plans
Currently, 403(b) hardship distributions can only be received from limited sources (i.e., employee contributions without earnings). Effective for plan years beginning after December 31, 2023, the Act will now conform 403(b) hardship criteria with 401(k) criteria.
- Optional employer matching or nonelective contributions treatment as Roth contributions
For contributions made after December 29, 2022, an employer may permit an employee to designate matching contributions or nonelective contributions as Roth contributions, provided that the participant is fully vested in such Roth employer contributions. These contributions are includable in the employee’s income.
Amendments to the plan
Any plan amendments needed as a result of these changes must be adopted by the last day of the 2025 plan year (2027 for collectively bargained and governmental plans) unless extended by the Department of Labor (DOL) or the Internal Revenue Service (IRS).
The Act also extends the plan amendment deadline to December 31, 2025, for the Setting Every Community Up for Retirement Enhancement Act of 2019, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and the Taxpayer Certainty and Disaster Tax Relief Act of 2020.
Contact Windes Employee Benefit Services for assistance and confirmation of timing.
