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ALERT: SECURE 2.0 introduces retirement plan changes effective immediately

January 11, 2023

Recent legislation was enacted that brings significant change for retirement plans. Learn more about what SECURE 2.0 is changing.

On December 29, 2022, President Biden signed into law the Consolidated Appropriations Act of 2023 (known as the Act). The Act contained 92 sections that affect retirement plans as quickly as the day it was signed and as far out as 2033. The sections related to retirement plans are referred to as SECURE 2.0.

SECURE 2.0 combines three passed bills from Congress; Securing a Strong Retirement Act of 2022, Enhancing American Retirement Now (EARN), and Retirement Improvement and Savings Enhancement to Supplement Healthy Investment for the Nest Egg (RISE & SHINE).

Below is a review of which provisions are active as of signing or January 1, 2023, with a glimpse of what to expect in 2024. In short order, we will provide additional details on the various other provisions that will take effect from 2025-2033.

What changes in 2023

Required Minimum Distribution (RMD) changes - The RMD age was increased to 73. This is only for determining the first year for RMDs. If someone is already receiving an RMD, they will continue to be required to take that distribution. The tax on late RMDs was reduced from 50% to 25%, and in some cases, could be reduced to 10% if timely corrected.

Required notices to non-participants - The burden of required notices to non-participating employees has been reduced. All employees must receive a copy of the Summary Plan Description and Notice of Eligibility before their plan entry date. If they elect not to participate in the plan, plans must only provide an annual notice of their right to participate and key plan benefits.

Participation incentives - Plan sponsors may now provide small, immediate incentives to encourage employees to participate in the plan. Items like gift cards or swag bags to those who join the plan are allowed up to a de minimus amount. Guidance is still needed about the definition of de minimus but is expected later this year.

Self-certification of hardships - For those with hardship provisions, the participant may now self-certify the reason for hardship. This reduces the burden of proof the plan sponsor needs to collect while also removing any liability from the plan sponsor if the certification is later determined to have been made under false pretense.

Qualified birth and adoption distributions - If your plan allows Qualified Birth and Adoption Distributions, and a participant decides to repay the amount to escape their tax liability, the repayment must be made within three years. Any distribution made under this provision before January 1, 2023, does not have the repayment opportunity.

Roth contributions - Employer (match and non-elective) contributions may be made as a Roth contribution. This will be an option that the Plan Sponsor will elect through the plan document. The employee can elect to have some or all their employer contributions made on a Roth basis. There are details to this provision that will need to be provided through additional guidance and will involve both your payroll and retirement plan providers.

Changes on the horizon

Despite the numerous changes in 2023, even more are looming in 2024:

  • The force-out limit increases from $5,000 to $7,000.
  • Student loan repayment is considered a deferral and is eligible for an employer match. This is an optional provision.
  • Long-term, part-time employee requirements will move from the current three-year window to a two-year window and now includes 403(b) plans.
  • Catch-up contributions will be required to be Roth contributions for anyone making over $145,000 (incremented each year based on the cost-of-living adjustments). If a Roth contribution is not allowed in the plan, then catch-up contributions will not be allowed for those over the income limit.
  • RMDs from Roth sources will no longer be required. This will align retirement plans with the rules for individual retirement plans.
  • Catch-up contribution limit increases at ages 60, 61, 62, and 63.
  • The RMD age increases to age 75.
  • Automatic enrollment requirement begins for new 401(k) and 403(b) plans established after enactment.
  • Hardship rule changes for 403(b) plans to better align with 401(k) rules.
  • An increased tax credit for low-income savers.

2025 and beyond

In future updates, we will provide you with additional provisions that will become effective in 2025 and beyond.

In summary

The latest omnibus bill and subsequent Act in late 2022 had several implications for retirement plans in 2023 and beyond. As always, consult with your plan recordkeeper or consultant to determine how these changes affect your plan or organization. If you have questions about your plan or the Act, please contact Brad Bechtel using the information below.

Brad Bechtel

Senior Vice President
Employee Benefit Services

Brad Bechtel leads AGH’s employee benefit services (EBS) division, which serves clients nationwide. EBS is one of the region's largest providers of retirement plan recordkeeping services for daily valuation plans. The division provides consulting services to clients on employee benefit plans, including plan design, implementation, operation, fiduciary due diligence, compliance, and through affiliate AGH Wealth Management, discretionary and non-discretionary investment fiduciary services, investment advisory services and employee education.

Brad is experienced in executive compensation, including non-qualified, phantom stock, top hat and excess benefit plans, as well as other deferred compensation approaches. He has consulted for numerous Fortune 500 corporations on investment management and fiduciary due diligence. He also provides search and selection due diligence consulting services for companies seeking new investment and recordkeeping providers for their qualified plans. Brad is a registered investment advisor who holds Series 7, 24 and 66 FINRA registrations, and he is a member of the American Society of Pension Professionals & Actuaries.

NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.

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