Employee benefits and retirement plan solutions Trends and Insights What does the SECURE 2.0 Act of 2022 mean for employers?
What does the SECURE 2.0 Act of 2022 mean for employers?

Find answers to trending questions and answers about the Secure 2.0 Act of 2022, including required minimum distributions (RMDs), Roth catch-up contributions, hardship self-certification and more.

Small group of people meeting to discuss Secure 2.0 Act.
7 min read |

For provisions impacting retirement plans in 2023 and early 2024, what are the next steps?

Recognize many of the opportunities in the SECURE 2.0 Act are optional. Although these provisions impact plans in 2023 and early 2024, the expected date of the legislative amendment will be due by the end of the 2025 plan year, allowing time for careful consideration.

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Here are some top questions and answers for the upcoming retirement plan provisions:

Generally, defined contribution includes 401(k), 403(b), and ESOP.

Required

Increase in age for required minimum distributions (RMDs)

The SECURE Act introduced an increase in age for RMDs, and SECURE 2.0 goes further to increase the age to 73 for those turning 72 on or after Jan. 1, 2023 and to age 75 for those turning age 73 on or after Jan. 1, 2033.

Plan types: Defined contribution, 403(b), 457(b), Defined benefit

How do the new RMD rules apply? What if someone turns age 73 in 2023 or 2024?

The applicable RMD age for someone who turned age 73 in 2023 is age 72. The employee will need to begin taking RMDs no later than April 1, 2023 (assuming the employee is an owner or a non-owner and there is no delay for a later termination date).

The applicable RMD age for someone who turns age 73 in 2024 is age 73. The employee must begin taking RMDs no later than April 1, 2025 (assuming the employee is an owner of a non-owner and there is no delay for a later termination date).

Does a plan sponsor need to take action to adopt the change?

This change is a required provision that goes into effect for 2023 RMDs. No plan sponsor action is needed for retirement plans at this time.

Required

Catch-up contributions as Roth for participants with FICA compensation more than $145,000

Retirement plans that allow catch-up contributions must support Roth catch-up contributions on or after Jan. 1, 2024 for participants with FICA compensation over $145,000.* The compensation used for determining this dollar threshold are wages for FICA (i.e., Social Security) tax purposes for the preceding calendar year as defined in Code Section 3121(a).

*In response to feedback that the Roth catch-up rule will be difficult to implement when it takes effect in 2024, the IRS has provided for a two-year administrative transition period. As a result, during the 2024 and 2025 tax year, catch-up contributions made by individuals who will be turning 50+ years and with FICA wages in excess of $145,000 can continue to be made as they are today. This gives plan sponsors until Jan. 1, 2026, to take the necessary steps to implement the processes needed to accommodate Roth contributions.

Plan types:
  • Defined contribution (SIMPLE plans exempted), 403(b)
Considerations/limitations:
  • For plans with a non-calendar plan year, you need to track this compensation by calendar year, not plan year.
  • Further guidance and clarification from the IRS and Treasury on several functional details are still needed.

Does a plan sponsor need to take action to adopt the change?

For retirement plans offering pre-tax catch-up contributions but not Roth deferrals, the SECURE Act requires a change. A plan amendment will be needed to either:

  • Add Roth deferrals as a contribution type; or
  • Remove catch-up contributions completely from the plan.

It will be necessary to work with the plan’s payroll provider to ensure they can accommodate pre-tax AND Roth catch-up contributions.

For retirement plan sponsors that don’t make a decision to add Roth or remove catch-up contributions by Jan. 1, 2026, an operational failure may be created if a catch-up contribution is made pre-tax for a participant over the FICA compensation of $145,000.

Note: When amending plans for this provision, fees may apply.

What impact does this have on payroll submissions for retirement plans with Roth contributions?

This is the first time FICA wages have been brought into threshold conversations in retirement plans (vs. other types of compensation). Plan sponsors and/or their payroll providers will need to determine and report employees that exceed $145,000 in FICA wages each year. Payroll file feeds to the record keeper will also need to appropriately account for Roth catch-up contributions. It is important plan sponsors discuss changes with their payroll provider to prepare for the new requirement.

Optional

Employer matching and non-elective contributions on a Roth basis

Retirement plans may allow participants to elect to receive employer matching and nonelective contributions as Roth contributions.

Plan types:
  • 401(k), 403(b), Governmental 457(b) plans
Considerations/limitations:
  • Only applies to vested employees.
  • Error in the language of the statute would inadvertently collect FICA taxes from contributions. A regulatory or legislative fix is needed prior to adoption.

What are the details around the new Roth provision of the SECURE 2.0 Act that allows participants to elect to receive employer matching and nonelective contributions on a Roth basis?

Roth provision – SECURE 2.0 Act: Plan sponsors may choose to update retirement plan features to allow participants to elect to receive employer matching and nonelective contributions as Roth contributions. Employer matching and nonelective contributions can be treated as Roth contributions. Matching and nonelective contributions designated as Roth contributions are not excludable from income and must be 100% vested when made.

While this provision is available now, from a payroll perspective and knowing more guidance/correction of technical error is needed, plan sponsors may want to delay adding this feature until additional guidance is provided.

In the meantime, the plan may be able to offer the ability to convert a vested account balance to a Roth money type via an in-plan Roth rollover or conversion. Your plan provider can further discuss this with you to help determine if it’s a plan design feature you would like to move forward with.

Optional

Employee self-certification of hardship withdrawals

Plan sponsors may rely on employee certification that deemed hardship withdrawal conditions have been met.

Plan types: 401(k), 403(b), Governmental 457(b) plans

What is a self-certification of hardship withdrawals?

Hardship self-certifications: The participant self-certification provision of the SECURE 2.0 Act states a retirement plan sponsor may rely on an employee’s written self-certification that their distribution meets the requirements of one of the seven safe harbor hardship reasons, and the distribution is not in excess of the amount required to satisfy the financial need.

Hardship self-certifications: The participant self-certification provision of SECURE 2.0 states a plan sponsor may relay on an employee’s written self-certification that their distribution meets the requirements of one of the seven safe harbor hardship reasons, and the distribution is not in excess of the amount required to satisfy the financial need.

It’s expected the Treasury will provide guidance to address when a plan sponsor has knowledge to the contrary that the employee meets the requirements of a safe harbor hardship.

Note: This differs from the hardship withdrawal summary substantiation method of self-certification the IRS has allowed since 2017, where a participant provides a summary of hardship details and agrees to retain their documentation which substantiates their hardship need and may need to provide this documentation in certain scenarios.

The summary substantiation method offers retirement plan sponsors more control over the hardship application process where the participant self-certification method of the SECURE 2.0 Act allows participants more latitude to certify their need.
Optional

Streamlined rules for withdrawals from retirement funds for disaster relief

Federal disaster withdrawals permitted following federal declaration. (Distributions may be repaid to retirement plan or IRA within three years.)

Plan types:
  • Defined contribution, 403(b), Governmental 457(b) plans, IRAs (QDRD ONLY)
Considerations/limitations:
  • Up to $22,000 may be withdrawn without the 10% early distribution penalty from an employer retirement plan or IRA for individuals affected by a qualified federal disaster.
  • Distributed amounts may be treated as gross income over three years.

Who can receive retirement plan withdrawals for disaster relief and what is the timing?

To be eligible for a qualified disaster recovery distribution (QDRD), a participant’s “principal place of abode” must have been in the disaster area during the incident period, and the participant must have sustained an economic loss because of the disaster.

The penalty-free tax treatment applies to distributions for disasters occurring on or after Jan. 26, 2021. The distribution is capped at $22,000 from retirement savings. Sponsors can offer the relief permanently so it’s automatically available whenever participants are affected by a qualified federally declared disaster.

Can retirement plan sponsors provide larger loan amounts if someone is affected by a qualified disaster?

SECURE 2.0 Act allows 401(k), 403(b) and governmental 457(b) plans to temporarily double the maximum plan loan to the lesser of $100,000 or 100% of the participant’s vested benefit. Plans can also suspend loan repayments for up to one year (with a corresponding extension of the loan term).

Note: Plan are permitted to provide for larger loan amounts and additional time for loan repayment for affected individuals.
Optional

Eliminating unnecessary plan requirements related to unenrolled participants

Retirement plans are permitted to exclude unenrolled participants from receiving certain required notices and disclosures as long as certain conditions are met.

Plan types: Defined contribution, 403(b) plans

What communications need to be sent to unenrolled participants?

Effective for plan years beginning after Dec. 31, 2022, plan sponsors no longer have to send certain required notices and disclosures to unenrolled participants as long as they provide the unenrolled participant a Summary Plan Description and other notices upon their initial eligibility. SECURE 2.0 requires retirement plans to send unenrolled participants an annual reminder notice of their eligibility to participate in the plan and any election deadlines. The notice also needs to detail the key benefits and rights under the plan, with a focus on employer contributions and vesting provisions.