SECURE 2.0 Act of 2022
January 24, 2023
The SECURE 2.0 Act of 2022 was signed into law on December 29, 2022 to increase retirement savings, improve retirement rules, and lower employer costs of setting up a retirement plan. How is your organization’s retirement plan impacted? Here are some of the key features of this new law:
- Automatic Enrollment and Escalation: Employers will be required to automatically enroll participants when they become eligible and automatically escalate contributions annually for all new plans beginning after the effective date of December 31, 2024. Exemptions for this rule apply for existing plans and certain business.
- Required Minimum Distributions (RMDs): Beginning January 1, 2023, the age requirement for RMDs will increase from 72 to 73. The RMD age will increase again in 2033 from 73 to 75. The Act also reduces the penalty on the individual for failure to take an RMD and removes the requirement from Roth-designated accounts for living participants in employer sponsored plans.
- Catch-Up Contributions: Beginning in 2024, all catch-up contributions for participants earning more than $145,000 will be deposited into Roth accounts. Additionally, the catch-up contribution limit for individuals age 60 to 63 will increase significantly in 2025.
- Long-term, Part-time Employees: The Act expands the provision for making long-term part-time employees eligible to participate, which currently applies to 401(k) plans, to 403(b) plans subject to ERISA, and reduces the length of service requirement from 3 years to 2 years, effective in 2025.
- 403(b) Plans: Effective in 2023, 403(b) plans will be permitted to join a multiple employer plan or pooled employer plan and invest in collective investments trusts. Additionally, the hardship distribution rules that are currently applicable to 401(k) plans are extended to 403(b) plans.
- 403(b) Plans: The Act conforms the current hardship distribution rules for 401(k) plans to 403(b) plans and the long-term, part-time employee provision is extended to 403(b) plans that are subject to ERISA. In addition, 403(b) plans will now be allowed to invest in collective investment trusts (CITs). Beginning in 2023, 403(b) plans can join a multiple employer plan (MEP) or pooled employer plan (PEP)
- Annual audits for groups of plans. The Act clarifies that each plan filing under a group of plans (added by the SECURE Act) is required to submit audited financial statements if it has 100 participants or more. Plans with fewer than 100 participants that are included in a group of plans are not required to submit audited financial statements.
- Other Provisions: Among the many other provisions in the Act, it will allow employer matching contributions under 401(k) and 403(b) plans on qualified student loan payments, provide exceptions to the 10% early distribution penalty for emergency expenses, increase cash-out limits, update compliance testing rules and facilitate correction of errors, amend rules for birth and adoption distributions, and clarifies audit requirements for group plans.
Plan sponsors must operationally implement these changes in accordance with the varying effective dates of the provisions, and the corresponding plan amendments should generally be adopted by the end of the 2025 plan year.
For more information, please contact one of our professionals.