SECURE 2.0 Act update and considerations
The retirement saving bill known as SECURE 2.0 Act of 2022, signed by President Biden at the end of last year, includes 92 new or modified retirement provisions that attempt to address deficiencies in retirement plan participation and savings among workers. Now, plan sponsors are seeking to understand changes enacted, what they mean for their plans and their employees and how they will address applicable requirements. To help you plan, we are providing an update on needed technical corrections and guidance, actions for you to consider soon, and decisions that can be pushed out. Note that we are implementing all of the required provisions as well as a developing a roadmap for supporting the optional provisions. We will continue to keep you updated.
Technical corrections and regulatory guidance needed
- In the SECURE 2.0 Act, there was some legislative language that inadvertently deleted the ability to make any catch-up contributions beginning in 2024.
- Congress is aware and a technical corrections bill is being drafted.
- It is unclear when a technical corrections bill would be introduced, but it is evident from the expansion of catch-ups and the requirement that certain catch-ups be made as Roth contributions that Congress did not intend to put an end to catch-up contributions.
- The regulatory agencies are also aware of this technical error and are working on possible guidance to ensure that plans that offer catch-up contributions will not have an issue in 2024.
Employer contributions as Roth1
- SECURE 2.0 provides plans with a new design option to add a feature that permits participants to direct employer non-elective and/or matching contributions to be made on a Roth basis. This will require some guidance from the IRS before it is feasible to offer in a plan. Regulatory guidance should help clarify how these contributions will be reported (likely on the W2 like other employee contributions) and how they are taxed, since they are immediately taxable to the participant.
What plan sponsors should consider now
Roth catch-up requirement
- Plans that currently permit age-based catch-up contributions but do not currently permit Roth contributions have to add a Roth feature to the plan if they want to continue permitting catch-up contributions, effective in years beginning after December 31, 2023.
- Evaluating this sooner rather than later in 2023 will help ensure a smooth transition in 2024.
- Updates may be needed to your payroll/data file for a Roth contribution, as well as to be able to capture employees’ FICA wages on payroll/data feed to your 401(k) recordkeeper.
Required minimum distributions (RMDs) age change to 73
- This change was effective January 1, 2023.
- Participant communications are being updated to reflect this change, particularly for participants who would have been subject to RMDs for the first time in 2023.
In-plan Roth no longer subject to RMDs during a participant’s lifetime
- This change is effective in 2024.
- Plans that permit in-plan Roth may want to consider how to let participants with Roth balances who are in RMD status know that they may have a lower RMD in 2024. Talk with your Bank of America representative on a possible engagement plan.
What plan sponsors have time to consider
Student loan matching contributions1
- Plans with employees with student debt may want to consider this new optional design option, which is effective in years beginning after December 31, 2023.
- Student debt is a multigenerational issue with parents and grandparents incurring debt to help finance college.
- The matching contribution provision is available to individuals who “incur” the debt, so this might be attractive to young employees starting out, but also to more seasoned employees who are carrying student debt.
- Additional clarification from regulators on the self-certification process for student debt payments will be helpful for plan sponsors in determining if they want to add this optional feature to their plan going forward.
Long-term part-time coverage
- SECURE 2.0 accelerates the three-year continuous service requirement to provide long-term part-time employees access to make elective deferrals to two years beginning in 2025.
- Consider increases to eligible population and impact to employee communications, required plan notices, etc.
Higher catch-up contributions at ages 60-63
- Recordkept clients will soon receive, if you haven’t already, more details around the required provisions, how we are supporting them and any actions you may need to take. Talk with your Bank of America representative who can help support you through these changes.
- Download our guide Understanding SECURE 2.0 Act of 2022 for information about the key retirement-related provisions.
1 We are reviewing the optional provisions and developing an implementation roadmap. More information will be shared in the near future.