The SECURE 2.0 Act of 2022 (SECURE 2.0 Act), which aims to increase retirement savings and expand coverage to employer-sponsored retirement plans, was included in the 4,155-page omnibus spending bill (HR 2617) to fund the government for 2023. The omnibus bill was passed by the Senate in a 68-29 vote on December 22, 2022. The House of Representatives passed the bill in a 225-201 vote on December 23, 2022. President Biden is expected to sign the bill soon.
Major goals of the law include workers saving more, saving earlier and keeping money in a qualified retirement plan longer, while allowing emergency access to some savings. The following are examples which may be of interest to employers:
Retirement Plan Design
- Qualifying longevity annuity contracts. Removes various limitations of current Treasury Department Qualifying longevity annuity contracts (QLACs). Effective for contracts purchased or received in an exchange on the date of enactment.
- 403(b) plan participation in MEPs and PEPs. Enables eligible small employers that want to offer 403(b) plans, which are generally sponsored by charities, educational institutions and nonprofits, to participate in multiple employer plans (MEPs) and pooled employer plans (PEPs). Effective for plan years beginning after December 31, 2022.
- Student loan match. Allows employers to match employee student loan payments with retirement plan contributions. For nondiscrimination testing purposes, a plan may test separately the employees who receive matching contributions on student loan repayments. Effective for contributions made for plan years beginning after December 31, 2023.
- Emergency savings accounts. Provides employers the option to offer pension-linked emergency savings accounts to their non–highly compensated employees. Employers may automatically opt employees into the accounts at no more than 3% of their salary; the portion of an account attributable to the employee’s contribution is capped at $2,500 (or lower as set by the employer). Effective for plan years beginning after December 31, 2023.
Expand Worker Eligibility and Access, Increase Savings
- Increasing the RMD age. Raises the age at which people must take RMDs from their retirement accounts from 72 to 73 starting on January 1, 2023. Also increases the age further to 75 starting on January 1, 2033. Effective for distributions required to be made after December 31, 2022.
- Starter 401(k) plans for employers with no retirement plan. Permits an employer that does not sponsor a retirement plan to offer a starter 401(k) plan (or safe harbor 403(b) plan). A starter 401(k) plan (or safe harbor 403(b) plan) generally requires that all employees be automatically enrolled in the plan at a deferral rate of 3% to 15% of compensation. Effective for plan years beginning after December 31, 2023.
- Creating a retirement savings lost and found. Creates a national, online, searchable lost and found database for Americans’ retirement plans at the U.S. Department of Labor. The database would enable retirement savers, who might have lost track of their retirement plan, to search for their plan administrator’s contact information. Directs the creation of the database no later than December 23, 2024.
- Part-time employee eligibility. Reduces the number of years of service from three to two after which part-time employees with at least 500 hours of service in two consecutive years must be made eligible for an employer-sponsored retirement plan. Effective for plan years beginning after December 31, 2024.
- Auto enrollment requirements. Requires 401(k) and 403(b) plans to automatically enroll all new, eligible employees at a 3% contribution rate that would be increased annually by 1% until it reaches at least 10%, but not more than 15%. Employers with current 401(k) or 403(b) plans, small businesses with ten or fewer employees, businesses that are less than three years old, and church and governmental plans would be exempt. Effective for plan years beginning after December 31, 2024.
- Higher catch-up contribution limits. Raises the limit for catch-up contributions to 401(k) or similar plans to the greater of $10,000 or 50% more than the regular catch-up amount in 2025 for individuals who have attained ages 60, 61, 62 and 63. The increased amounts are indexed for inflation after 2025. Effective for taxable years beginning after December 31, 2024.
After-Tax Options
- Employer contributions as after-tax income. Gives employees the option to designate employer contributions as after-tax income, to be taxed in the current tax year, instead of the year it is withdrawn. Effective on the date of enactment.
- SIMPLE and SEP Roth IRAs. Permits employees participating in a SIMPLE IRA or a simplified employee pension (SEP) to elect to treat elective deferrals and employer contributions as after-tax Roth contributions. Effective for taxable years beginning after December 31, 2022.
- Elective deferrals generally limited to regular contribution limit. Provides that all catch-up contributions to qualified retirement plans are subject to Roth tax treatment. Effective for taxable years beginning after December 31, 2023.
Distributions for Purposes Other Than Retirement
- Use of retirement funds in connection with qualified federally declared disasters. Creates permanent rules relating to the use of retirement funds in the case of disaster. The permanent rules would allow up to $22,000 to be distributed from employer-sponsored retirement plans without penalty. Effective for disasters occurring on or after January 26, 2021.
- Use of retirement funds for certain emergency expenses. Creates rules for distributions used for emergency expenses, which are unforeseeable or immediate financial needs relating to personal or family emergency expenses. One distribution would be permissible per year of up to $1,000, and the employee would have the option to repay the distribution within three years. Effective for distributions made after December 31, 2023.
- Waiver of early distribution penalty for domestic abuse victims. Waives the 10% tax on early distributions for victims of domestic abuse who take early distributions from retirement plans. Effective for distributions made after December 31, 2023.
Small Employer Tax Credits
- Tax credit for employing military spouses. Creates a new tax credit for small employers that allow military spouses to participate in the employer’s defined contribution plan. Effective for taxable years beginning after the date of enactment.
- Adjustment of tax credit for small employer pension plan startup costs. Increases the current small business startup credit from 50% to 100% of administrative costs, up to an annual cap of $5,000 for employers with up to 50 employees. Except in the case of defined benefit plans, an additional credit is provided. Effective for taxable years beginning after December 31, 2022.
For a summary of all SECURE 2.0 Act provisions included in the omnibus bill, see the Senate summary.
For additional background information, see our previous blogs: Everything Plan Sponsors Need to Know About SECURE Act 2.0 and What Plan Sponsors Need to Know About SECURE 2.0 in the Senate.
For more SECURE 2.0 Act resources, see our SECURE Act 2.0 web page. Stay tuned to the International Foundation for future updates.
Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.
Amanda Wilke, CEBS
Information/Research Specialist at the International Foundation
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