Congress passed a new act called the Securing a Strong Retirement Act of 2022 (commonly referred to as SECURE 2.0) as part of the Consolidated Appropriations Act of 2023, which was signed into law by President Joe Biden. There are several provisions as part of SECURE 2.0, which we have written about in the past. We have summarized those provisions that became effective January 1, 2023, below.
Required Minimum Distribution (RMD) Age
Effective January 1, 2023, the required minimum distribution age was raised from the current age of 72 to 73. This change applies to distributions made after December 31, 2022, for individuals who turn 72 after that date. Although usually plan service providers (recordkeepers or third-party administrators) take care of this for Plan Sponsors, it’s important to ensure your provider is up to date on the changes. There is a penalty for missed distributions of this type. The penalty amount was changed from 50% of the underpaid amount to 25%.
Roth Employer Match
The Act allows employers to allow participants to choose to receive employer contributions on a Roth basis (this is an after-tax basis).
Gift Cards, Overpayments and Terminal Illness Withdrawals
- Employers are allowed to hand out small dollar amount gift cards to employees to encourage employees to contribute to the plan. These must be small dollar amounts and must not be paid by Plan assets.
- In the event of an overpayment to a retiree, this law allows employers to allow the retiree to keep the overpayment. It also allows overpayments to remain in the plan.
- The new law removes the 10% early distribution penalty made by a participant that is terminally ill.
Part-time, Long-term Employees
The law reduces the length of service required for employees that are classified as part-time but long-term from 3 years to 2 years to participate in the plan. This is a change that was introduced in the original SECURE Act but this law reduces the time required. Employees that have reached the age of 21 and have performed at least 500 hours of service in the 2-year period will meet this new requirement. Plan sponsors must allow these employees in the Plan, but they are not required to match elective deferrals of these employees.
Hardship Withdrawals
Employers may rely upon a self-certification document to establish that the participant has a qualifying event for a hardship withdrawal. Note that with this new law, there isn’t an established protocol for how regulatory authorities, such as the Internal Revenue Service, will handle this new regulation. They may still require the employer to provide documentation proving the need for the hardship. Employers may still want to require documentation to prevent issues in the event of a review of the hardship later by an authority.
Compliance Resolution Expansion
The IRS Employee Plans Compliance Resolution Systems (EPCRS) have been expanded to include resolutions for additional types of operational errors. We recommend reviewing these changes with your service provider in the event of an error in your plan to ensure you take advantage of all corrective mechanisms available.
Notice Requirements
The Act removes the requirement to provide notices to eligible but not enrolled employees. The Summary Plan Description must still be provided at the time of initial eligibility and an annual reminder of the eligibility to participate must still be provided.
Future blog posts will update the other Act provisions that will become effective January 1, 2024, January 1, 2025 and those effective January 1, 2026 and later. We encourage Plan Administrators to review the upcoming changes to ensure their plan complies with all federal requirements. For questions on any of these provisions, we recommend that Administrators check with their service provider to verify the applicability of each provision to their plan.
For more information on how our 401(k) audit team can help, request a free consultation below or contact Kim Moore at (260) 918-8824 to discuss your unique 401(k) audit needs.
