On December 29, 2022, the President signed into law the Consolidated Appropriations Act, 2023, which included the SECURE 2.0 Act (“SECURE 2.0”). SECURE 2.0 is the second version of the Setting Every Community Up for Retirement Enhancement (SECURE) Act (which was signed on December 19, 2019).
SECURE 2.0 makes additional changes and enhancements to retirement plans and IRAs. Some of the changes made by SECURE 2.0 are required, while others are optional, and it’s important to note that a number of SECURE 2.0 provisions are not effective until a future date. In addition, certain provisions will require additional guidance from the Treasury, Internal Revenue Service (IRS), and/or Department of Labor (DOL).
The following are some key provisions and noteworthy SECURE 2.0 changes effective in 2023:
Required Minimum Distributions (RMDs) age changes from age 72 to age 73 (for individuals who attain age 72 after December, 31 2022)
RMD excise tax – reduced from 50% to 25% and further reduction to 10% with appropriate action
Employers may make employer matching or non-elective contributions as Roth contributions
Self-certification for hardship withdrawals (plan years beginning after date of enactment)
Distribution rule changes (terminally ill); also establishes repayment period for qualified birth or adoption distributions
Eliminates first day of month rule for employee deferral changes in 457(b) governmental plans
Qualified disaster distribution relief (creates permanent, standard rules for access to funds in the event of a qualified federally-declared disaster)
Other key SECURE 2.0 provisions coming in 2024 or later:
Automatic enrollment requirement begins for new 401(k) and 403(b) plans established after enactment
Catch-up contribution limit increase at ages 60, 61, 62, and 63
Catch-up contribution – Roth required for employees above a certain income threshold
RMD age increases to age 75 Employer matching contributions for student loan payments
Establishes a retirement savings lost and found
Long-term part-time employees – modifies original SECURE Act rules for 401(k) and includes ERISA 403(b) plans
Hardship rule changes for 403(b) plans to better align with 401(k) rules
Increases small amount force out limit (from $5,000 to $7,000)
For a summary of the SECURE 2.0 main provisions, including a brief overview of each provision, the plan type(s) impacted, and the effective date of the change, along with commentary, you can read a robust summary of Secure 2.0.
Managing the Implementation of SECURE 2.0
While many aspects of the law are effective immediately, some provisions become effective over the coming years. Plan sponsors should focus first on the provisions that become immediately effective or will be effective for the next plan year or taxable year. For mandatory provisions, such as changes to the RMD rules, plan sponsors will need to comply with the law as soon as they become effective. For discretionary provisions, plan sponsors will need to determine if and when they want to change their plan designs (e.g., add the new distribution options to their 401(k) plans).
As we experienced with the SECURE Act (i.e., SECURE 1.0), we do not expect significant SECURE 2.0 guidance from the IRS or the Department of Labor for some time. Of course, the lack of guidance puts plans in a quandary regarding how optimize implementing law changes.
Generally, we recommend taking a reasonable, good-faith approach to the interpretation of any particular provision and staying vigilant for future IRS and DOL guidance.
Questions about Secure 2.0?
The Robin S. Weingast & Associates team is here to help We are updating our systems, distribution forms, notices, plan amendments, etc., to accommodate these changes for the proper operation of your retirement plan(s). We are evaluating current programs, products and services as well as future opportunities to help you navigate these changes. We're available to answer questions associated with SECURE 2.0 Act, so contact us today.