On December 29, 2022, President Biden signed into law the 2023 Consolidated Appropriations Act (CAA), a $1.7 trillion omnibus spending bill passed by Congress on December 22 and 23. CAA includes numerous significant changes to retirement plans, referred to in the CAA as the SECURE 2.0 Act of 2022 (SECURE 2.0), a law nearly 400 pages in length. Some SECURE 2.0 provisions become effective on the date of enactment, while most provisions have effective dates in 2023 or later.
SECURE 2.0 contains about 100 retirement provisions and will impact almost all plans. Plan amendments to comply with the Act must generally be adopted by the end of the 2025 plan year. Plans must be operated in accordance with the statutory changes, starting on each statutory change effective date.
Below is a list of key elements that may be most impactful to Plan Sponsors and their Participants.
Top 10 Most Impactful Provisions in SECURE 2.0
1.) Roth treatment for catch-up contributions by higher paid employees
- For taxable years beginning after 2023, all qualified plan catch-up contributions must be Roth contributions.
- Employees with compensation of $145,000 or less (indexed for inflation) are exempt from this requirement.
2.) Higher catch-up contribution limit to apply at age 60, 61, 62, and 63
- For Non-SIMPLE Plans:
- Increases the limit on catch-up contributions for individuals aged 60-63 to the greater of (a) $5,000 or (b) 150% of the regular catch-up amount for 2024, indexed for inflation.
- For SIMPLE Plans:
- Increases the limit on catch-up contributions for individuals aged 60-63 to the greater of (a) $5,000 or (b) 150% of the regular catch-up amount in 2025, indexed for inflation.
3.) Elective treatment of student loan payments as elective deferrals for purposes of matching contributions
- Allows employer contributions made on behalf of employees for “qualified student loan payments” to be treated as matching contributions, provided certain requirements are satisfied.
- Applies to 401(k), 403(b), SIMPLE IRAs, and governmental 457(b) plans.
- Employers are permitted to apply the ADP test separately to employees who receive matching contributions on account of qualified student loan payments.
- Employer may rely on employee certification of student loan payment.
4.) Optional treatment of employer matching or nonelective contributions as Roth contributions
- Allows a Section 401(a) qualified plan, a Section 403(b) plan, or a governmental 457(b) plan to permit employees to designate employer matching or nonelective contributions as Roth contributions.
- Student loan matching contributions may also be designated as Roth contributions.
- Matching and nonelective contributions designated as Roth contributions are not excludable from the employee’s income and must be 100% vested when made.
5.) Increase in starting age for Required Minimum Distributions (RMDs)
- Increases the RMD age to:
- 73 for a person who attains age 72 after December 31, 2022, and age 73 before January 1, 2033.
- 75 for an individual who attains age 74 after December 31, 2032.
6.) Mandatory automatic enrollment / escalation for new plans
- SECURE 2.0 requires most new 401(k) and 403(b) plans to automatically enroll participants (employees may opt out).
- The initial automatic enrollment amount must be at least 3% but not more than 10%.
- The deferral rate is automatically increased by 1% each year until it reaches at least 10%, but not more than 15%.
- Small businesses with 10 or fewer employees, new businesses (those that have been in business for less than 3 years), church plans and governmental plans are exempt.
7.) Emergency savings accounts linked to individual account plans
- Provides employers the option to offer their non-highly compensated employees pension-linked emergency savings accounts.
- Employers may automatically opt employees into these accounts at up to 3% of salary, with the employee funded portion of the savings account capped at $2,500 (or lower as set by the employer).
- Once the cap is reached, additional employee contributions can be directed to the employee’s Roth defined contribution plan (if they have one) or stopped until the balance attributable to contributions falls below the cap.
- Contributions are made on a Roth-like basis and treated as elective deferrals for purposes of retirement matching contributions, with an annual matching cap set at the maximum account balance.
- The first four withdrawals from the account each plan year may not be subject to any fees or charges solely on the basis of such withdrawals.
- At separation from service, employees may take their emergency savings accounts as cash or roll it into their Roth defined contribution plan (if they have one) or IRA.
8.) Replacement of the current nonrefundable Saver’s credit with a federal match to IRA and retirement plan contributions
- Changes Saver’s credit from a cash credit paid with the tax refund (or against taxes owed) to a federal matching contribution, regardless of tax obligation, that must be deposited into a taxpayers’ IRA or retirement plan.
- The match will be 50% of contributions up to $2,000 per individual (gradually phased out at various income levels).
9.) Improving coverage for part-time workers
- Reduces from three to two the required years of service before long-term, part-time workers are eligible to contribute to a plan.
- Pre-2021 service is also disregarded for purposes of the vesting of employer contributions (and pre-2023 service is disregarded for eligibility and vesting purposes under the new, SECURE 2.0 part-time employee provision).
- Extends the long-term, part-time coverage rules to 403(b) plans that are subject to ERISA.
10.) Retirement savings Lost and Found
- Directs the DOL to create an online searchable “Lost and Found” database to collect information on benefits owed to missing, lost or non-responsive participants and beneficiaries in tax-qualified retirement plans.
- Assists plan participants and beneficiaries in locating those benefits.
- Applies to tax-qualified defined benefit and defined contribution plans subject to ERISA vesting provisions.
Join us for a webinar on how SECURE 2.0 may impact
your retirement plan.
SECURE 2.0 and Your Retirement Plan
What you need to know
Date: January 23, 2023
Time: 10:00 am PST
Jonathan St. Clair
Chief Fiduciary and Managing Director
SageView Advisory Group
Sarah N. Lowe
Frost Brown Todd
Caroline N. Renner
Frost Brown Todd
Click here to register: Register Now