The SECURE 2.0 Act of 2022 (SECURE 2.0) encompasses a number of changes affecting retirement plans that go into effect over the next few years. SECURE 2.0 aims to make it easier for employers to offer retirement plans and help employees plan for the future. There are several key provisions of the law taking effect in 2024 that are either required or optional.
Four Key Mandatory Changes
There are four key mandatory changes that focus on plan operation and must be implemented in 2024.
Long-Term, Part-Time Employee Eligibility and Vesting
The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE 1.0) changed minimum participation rules for long-term, part-time (LTPT) employees in 401(k) plans starting in 2024. Under these rules, an LTPT employee is a non-collectively bargained employee who completes at least 500 hours of service in each of three consecutive, 12-month periods (applicable for the years 2021, 2022 and 2023).
SECURE 2.0 expanded the requirement to apply to ERISA-covered 403(b) plans beginning in 2025. Also effective in 2025, SECURE 2.0 changed the definition of LTPT employees from employees age 21 and older who worked at least 500 hours in three consecutive years to those who worked at least 500 hours in two consecutive years. The rule requiring consideration of years before 2021 for vesting purposes has also been eliminated, effective in 2024.
On November 27, 2023, the Internal Revenue Service (IRS) released proposed rules under section 401(k) of the Internal Revenue Code, providing clarity on several topics related to LTPT employees. The rules define “long-term, part-time employees” and discuss participation and vesting requirements, employer nonelective and matching contributions, and employer elections. The proposed rules are set to apply to plan years that begin on or after January 1, 2024. Comments on the proposed rules are due January 26, 2024, and a public hearing has been scheduled for March 15, 2024.
Surviving Spouse’s Treatment for Required Minimum Distribution (RMD) Purposes
Beginning in 2024, the surviving spouse of a participant who dies before commencing RMDs may elect to be treated as the employee for purposes of RMD rules, allowing for the RMDs to be delayed until the surviving spouse is required to take their first RMD.
Roth Plan Accounts Not Subject to RMDs
No Pre-Death RMDs for Roth Accounts
Beginning in 2024, participants are no longer required to take RMDs from their Roth 401(k) accounts before death. This aligns with the treatment of RMDs for Roth IRA accounts, which do not require distributions during a participant’s lifetime.
Roth Plan Accounts Not Subject to Lifetime RMD Rules
Effective in 2024, Roth accounts in qualified plans are no longer subject to lifetime RMD rules. This change does not affect distributions that are required for 2023 but permitted to be paid in 2024 or lifetime RMDs from pre-tax accounts.
Four Optional Changes
There are four optional changes coming out of SECURE 2.0 that plans may choose to implement in 2024.
Matching Student Loan Repayments
Beginning in 2024, 401(k), 403(b), governmental 457(b) and Savings Incentive Match Plan
s for Employees of Small Employers (SIMPLE) plans can treat employees’ qualifying student loan payments as elective deferrals for purposes of matching contributions. A qualified student loan payment is broadly defined as any indebtedness incurred by the employee solely to pay qualified higher education expenses of the employee.
For nondiscrimination testing purposes, a plan may separately test the employees who receive matching contributions on student loan repayments.
The IRS has not yet issued guidance or model language for this provision. For more information on matching student loan repayments, see the International Foundation’s blog, “Matching Contributions for Qualified Student Loan Payments Under SECURE Act 2.0.”
Pension-Linked Emergency Savings Accounts (PLESAs)
For plan years beginning in 2024, SECURE 2.0 includes two options for employers who want to help employees access lesser amounts from 401(k), 403(b),and governmental 457(b) plans.
A participant may withdraw:
- Up to $1,000 from their employer-sponsored retirement plan account, penalty-free, once every three years or sooner if the withdrawal is paid back to the plan.
- Up to $2,500, subject to numerous conditions, if the plan establishes a PLESAs.
On January 12, 2024, the IRS issued Notice 2024-22—providing guidance on reasonable actions employers offering PLESAs can take to prevent potential manipulation of PLESA matching contribution rules. The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) recently issued 20 Frequently Asked Questions on PLESA eligibility and participation, contribution rules, distributions and withdrawals, and administration and investment. Additional guidance is under consideration by EBSA.
Penalty-Free Withdrawals for Emergency Expenses
Prior to SECURE 2.0, an additional 10% tax was applied to early distributions from retirement accounts such as 401(k) plans, unless an exception applied.
Beginning in 2024, SECURE 2.0 provides an exception for certain distributions used for emergency expenses—unforeseeable or immediate financial needs relating to personal or family emergency expenses. One distribution is allowed per calendar year of up to $1,000. No additional emergency distributions are allowed during the three-year repayment period unless the funds are paid back, or new contributions are at least equal to the withdrawal amount.
Penalty-Free Withdrawals for Domestic Abuse
Beginning in 2024, withdrawals of up to $10,000 (indexed for inflation in future years) or 50% of the participant’s account are permitted for a participant who self-certifies that they have been the victim of domestic abuse (e.g., physical, sexual, psychological
, or emotional abuse) during the preceding one-year period. These withdrawals are not subject to the 10% tax on early distributions.
Delayed Until 2026—After-Tax Treatment of High-Income Earners’ Catch-Up Contributions
SECURE 2.0 provides that catch-up contributions for employees whose earnings exceed $145,000 may now be made only as Roth contributions. Most plans allow employees to make catch-up contributions, but many plans do not currently provide them for Roth contributions. This provision was supposed to take effect in 2024, but the IRS released Notice 2023-62 on August 25, 2023, providing for a two-year administrative transition period (i.e., delay in the effective date). If a Roth option is not already included in their plan for high-income earners, an employer
s no longer needs to add the Roth option before 2026.
During the transition period, catch-up contributions can continue on a pre-tax or Roth basis (if the plan allows for this) until 2026, regardless of a plan participant’s income.
Actions for Plan Sponsors to Take Now
Implementation changes resulting from SECURE 2.0 provisions may require a plan amendment. Plan sponsors should consult their plan document regarding amendments. Plan sponsors should also check with their plan administrators regarding implementing changes, as it could take time to implement desired changes in 2024.
Both SECURE 1.0 and SECURE 2.0 allow plans to delay amending a plan if the eventual amendment is consistent with earlier operation, but plan sponsors must remember that delayed amendment dates only apply to legislative changes. Segal reminds plans that, “any other discretionary changes that are to apply retroactively to earlier in the plan year still need to be officially adopted by the close of the plan year.”
Guidance is still slowly being released on many SECURE 2.0 provisions. Plan sponsors must be aware that there is more guidance to come. Stay tuned to the International Foundation for updates.
Tune in to the International Foundation’s webcast recording, “SECURE 2.0 Act—Get the Most out of Your Plan,” to learn more about the following:
- The ability to include student loan benefits in plans
- Tools to help employees establish an emergency savings account
- Ways to increase catch-up contributions for near-retirees
- Expanded tax credits for new retirement plans.
Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.