On December 29th, 2022, the U.S. Government enacted an omnibus spending package that contains 130 pages of new retirement plan laws. This portion of the spending package is referred to as SECURE Act 2.0.
In the coming months after there is more guidance, we will conduct SECURE ACT 2.0 webinars for our partners and customers to take a deeper dive into how we are supporting you with these changes. Please be on the lookout for those invitations.
SECURE Act 2.0 creates numerous new features and options for retirement plans and changes how many aspects of retirement plan’s function. Many of the key features, options, and changes are laid out below. For optional items, our general recommendation is for plans to wait to implement them until there is a process for tracking which ones are being adopted and which are not, and for expected technical guidance to be released.
The startup credit for small employers has increased!
Doubles tax credits for new plans:
For small businesses with up to 50 employees, SECURE Act 2.0 increases the existing tax credit to 100% of plan start-up costs (up from 50%), capped annually at $5,000 per employer for each of the first three years. That could result in a total tax credit of $15,000.
Eligible businesses with 51 to 100 employees are still subject to original SECURE Act tax credits equal to 50% of administrative costs, capped annually at $5,000 per employee for three years.
We will do a campaign for plans that are potentially eligible for this tax credit to make them aware. Plan Sponsors should consult their tax advisors to receive the tax credit.
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Plans that start after 2024 must automatically enroll participants at a deferral rate of 3% and automatically escalate deferrals by at least 1% per year until deferrals reach between 10% and 15%. Participants may opt-out of these automatic features. | ✓ |
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The startup credit for small employers has increased. The new credit is equal to 100% of administrative costs up to $5,000 plus a credit equal to employer contributions given to employees earning less than $100,000 that is capped at $1,000 per employee and phased out for employers with more than 50 employees in the prior year. | ✓ |
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Starting in 2027, plans may allow the US Government to provide a matching contribution of 50% on the first 2% of compensation for participants that meet income requirements. |
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Non-Roth RMDs now begin at age 73, and starting with this tax year, the penalty for failing to take an RMD is lowered to 25% for all RMDs and 10% for IRA RMDs failures that are corrected quickly. | ✓ |
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Beginning in 2024, the IRA contribution limit will be indexed; the employer contribution limit for SIMPLE IRAs will increase to the lesser of 10% of compensation or $5k; and deferral and catch-up limits for some SIMPLE plans will increase. | ✓ |
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Beginning in 2024, catch-up contributions for people earning over $145k must be made on a Roth basis. | ✓ |
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Beginning in 2024, employers may treat student loan payments as deferrals for matching contribution purposes. Also, employers may rely on participant self-certification of loan payments and conduct separate ADP testing for these participants. |
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A 3-year tax credit for newly eligible military spouses of up to $500 is now available for tax years starting after 12/29/22. | ✓ |
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For plan years beginning after 12/29/22, employers and other plan service providers may provide de minimis financial incentives for plan participation so long as the incentives are not paid for with plan assets. |
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Beginning in 2024, plans may allow participants to take an emergency withdrawal once every 3 years. This withdrawal will not be subject to the 10% excise tax on early distributions, may not exceed $1k, and may be repaid. |
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Beginning in 2024, a new plan type will be available: the Starter 401(k). This plan type will only allow deferrals, be deemed to pass testing, and have lower contribution limits than traditional 401(k) plans. |
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Beginning in 2025, employers must allow employees who work 500 or more hours per year for 2 consecutive years to enter 401(k) plans for deferral purposes. | ✓ |
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Beginning in 2024, plans will be allowed to add "Pension-Linked Emergency Savings Accounts". Only NHCEs may make contributions to these accounts and their contributions are capped at $2.5k per year. Additionally, participants may take up to 4 free withdrawals from their accounts each year, and they may be auto enrolled into these accounts at a rate of up to 3%. |
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The rules tied to recouping overpayments to participants have changed. Fiduciaries may decide to not pursue participants for the extra benefits so long as the plan is made whole. Additionally, there are new protections for some overpayment recipients. | ✓ |
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DOL has been tasked with creating a retirement lost and found within the next two years that will allow people to search for lost retirement benefits. |
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Beginning in 2024, plans may increase their cash-out limit to $7k. |
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Within 2 years, the IRS's Employee Plan Compliance Resolution System (i.e., "EPCRS") will expanding to include IRAs and to make most inadvertent failures eligible for self-correction. | ✓ |
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Governmental 457(b) plans may now allow participants to make deferral rate changes on days other than the first of the month. |
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Top heavy testing may be performed separately on employees who do not meet the statutory minimum age and service requirements for plan years starting after 2023. |
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403(b) hardship distribution rules now line up with the hardship distribution rules for 401(k) plans, including the ability to rely on participant self-certification. |
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Beginning in 2024, plans may allow victims of abuse to take distributions that are exempt from the 10% excise tax on early withdrawals. The distributions may not exceed the lesser of $10k or 50% of their vested benefits. |
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After 2023, plan sponsors may retroactively amend their plans after the close of a plan year to increase non-elective benefits if the amendment is executed before their tax return date. |
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Sponsors of solo(k) plans established after 12/29/22 may make retroactive deferrals for their first plan year. |
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The 10% penalty on early withdrawals no longer applies to people who can prove they are terminally ill. | ✓ |
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There are now permanent rules for distributions and loans for federally declared disasters. Plans may now allow participants who live in a federally declared disaster area to take a distribution of up to $22k within 180 days of the close of the disaster period. This distribution is exempt from the 10% excise tax on early withdrawals and may be repaid within 3 years. |
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Employers may now replace their SIMPLE plans with a safe harbor 401(k) plan mid-year instead of waiting for the end of a calendar year. | ✓ |
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Plans may be amended to allow the provision of Roth matching contributions. |
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Unenrolled participants no longer need to receive most notices so long as they are given a notice reminding them of their eligibility at least once per year. |
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We are always focused on the quality of the service we provide to you and supporting you with these changes. If you have any feedback that you think would be helpful, or if you have questions about SECURE Act 2.0, please reach out to your relationship manager.