January 2023: SECURE 2.0: Recent Changes to Retirement Plan Laws

Update Applicable to:
All employers.

What happened?
On December 29, 2022, President Biden signed the SECURE 2.0 Act of 2022 (“SECURE 2.0”) into law, which includes numerous changes to the Internal Revenue Code of 1986, as amended (the “Code”) and the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) designed to enhance individual retirement goals.

What are the details?
Effective January 1, 2023

• The age retirement account holders have to start taking Required Minimum Distributions (RMDs) has increased from 72 to 73. Starting in 2033, this age will increase again to 75.

• Additionally, in the event a retirement account holder fails to take an RMD as required, the penalty has been reduced from 50% to 25% of the RMD amount (and down to 10% if corrected in a timely manner for Individual Retirement Accounts (IRAs)). This change is effective for plan years beginning on or after December 29, 2022.

• If a participant in a 401(k), 403(b), or governmental 457(b) plan elects it, an employer is permitted to make matching or non-elective contributions on a Roth basis, if permitted by the plan. Previously, employers were not allowed to provide matching contributions on a Roth basis in these plans.

Effective January 1, 2024

• Roth accounts in 401(k), 403(b), or governmental 457(b) plans will be exempt from RMD requirements.

• A plan will be permitted to increase its mandatory cashout limit from $5,000 to $7,000.

• Sponsors of 401(k) and 403(b) plans will be permitted to provide employer-matching contributions to the plan for employees’ qualified student loan repayments outside the plan.

• Employers may amend their plan to provide emergency savings accounts for non-highly compensated employees. In addition, employers may amend their plans to permit employees to withdraw up to $1000 per year from their plan accounts for certain emergencies, without incurring the 10% penalty for early distributions. Employees are permitted to repay the plan amounts withdrawn under this permission if such repayment occurs within three years of the withdrawal.

Effective January 1, 2025

• Catch-up contributions will increase – participants between ages 60 and 63 in non-Savings Incentive Match Plan for Employees (SIMPLE) IRA plans will see an increase in catch-up contributions from $7,500 to $10,000 (or 150% of the regular catch-up amount, whichever is greater). The $10,000 amount will be indexed for inflation.

• Most new 401(k) and 403(b) plans established after the enactment of SECURE 2.0 will be required to provide for automatic enrollment of participants upon becoming eligible (with an option to opt-out). Participants who are auto-enrolled must begin with a contribution amount between 3% and 10%, with the amount increasing by 1% each year until it reaches at least 10% but no more than 15%. Previously existing plans, small business (i.e., those with 10 or fewer employees) plans, new business (i.e., those in existence less than three years) plans, church plans, and governmental plans are exempt.

• Most defined contribution plans that permit employee elective deferrals will be required to allow part-time employees who completed 500 hours in the previous two consecutive years to enroll. This is a reduction from the three consecutive years of service threshold for part-time employees under the SECURE Act of 2019.

Below are some hyperlinks to one of our trusted sources, Clark Hill, that would provide more detailed and helpful information regarding the new Secure Act.

• Catch-Up Contributions Increase
• Mandatory Roth Treatment of Catch-Up Contributions for High Earners
• Roth Contributions
• Automatic Enrollment and Automatic Escalation
• Cash-Out Limitation Increases
• Making Matching Contributions Based on Participants’ Student Loan Repayments
• Emergency Distributions
• Distributions on Account of FEMA-Declared Disasters
• Domestic Violence or Abuse Distributions
• Terminal Illness Distributions
• Long-Term Care Insurance Distributions
• Emergency Savings Accounts for 401(k) and Other Defined Contribution Retirement Plans
• Expansion of Requirement for Part-Time Employee Participation
• De Minimis Incentives to Participate
• 403(b) Plan Changes
• Congress Seems to Tell IRS to Massively Expand the Scope of Self-Correction for Plan Errors
• Other Administrative Changes

For more information, please see the links below:

SECURE Act

Article 1 – Article 2 – Article 3

What do employers need to do?
Employers should review the provided links above carefully and should consider coordinating with their benefits and service providers as soon as they are able.