SECURE 2.0 ACT OF 2022: MODIFIES RETIREMENT PLAN PROVISIONS
On December 23, 2022, Congress passed the Consolidated Appropriations Act, 2023, which contains the Secure 2.0 ACT of 2022 (the ”Act”) and was signed into law by President Joe Biden on December 29, 2022. The Act includes several provisions related to retirement plans that:
1. Expand participant coverage
2. Help participants preserve income
3. Simplify plan rules and provide administrative procedures
Below are a few key elements included in the Act.
Increase in age for the beginning date of Required Minimum Distributions (RMD)
The required age for an RMD beginning date is increased under the following schedule for participants and spousal beneficiaries of a participant that died prior to reaching the RMD beginning date:
· Effective date: Calendar years after December 31, 2022
· Applicable plans: 401(a), 401(k), 403(b), and 457(b) plans and traditional IRAs
Increased catch-up limits at age 60, 61, 62, and 63
Increases age based catch-up limits to the greater of $10,000 or 50 percent more than the regular age 50 catch-up amount in 2025 (as indexed for inflation) for participants who have reached ages 60, 61, 62 and 63.
· Effective date: Calendar years beginning after December 31, 2024
· Applicable plans: 401(k), 403(b), and governmental 457(b) but cannot be used in addition to 457(b) special catch-up
Age 50+ Catch-up contributions made only as Roth contributions for certain highly paid employees
If a participant’s wages subject to FICA in the previous year paid by the employer sponsoring the plan were more than $145,000 (subject to annual cost of living adjustments in $5,000 increments), the participant may only contribute the Age 50+ Catch-up as a Roth contribution.
· Effective date: Tax years after December 31, 2023
· Applicable plans: 401(k), 403(b) or governmental 457(b) plan
Improving coverage for part-time and seasonal workers
Further reduces the minimum eligibility service requirements from three years (set forth in SECURE Act 1.0) to two years. Individuals will now be eligible as of the earlier of (1) one year of service, or (2) the completion of a 24-month period consisting of two consecutive 12-month periods with 500 hours of service and attainment of age 21 by the end of the calendar year. This reduction does not apply to employees subject to collective bargaining or nonresident aliens and the 12-month period beginning before January 1, 2023, is not taken into account.
· Effective date: Plan years after December 31, 2024
· Applicable plans: ERISA 401(k) and ERISA 403(b) plans
Increased dollar amount for a mandatory distribution (“Cashout”)
The dollar amount which a plan may authorize a Cashout of a terminated participant’s vested account without the participant’s consent increases from $5,000 to $7,000.
· Effective date: Distributions after December 31, 2023
· Applicable plans: 401(a), 401(k), 403(b), and governmental 457(b) plans
Eliminating unnecessary plan requirements related to unenrolled participants
Provided a participant has received a summary plan description and other documents related to plan eligibility, a plan is not required to provide disclosures or notices to employees who are eligible to participate but have not enrolled in the plan, other than an annual reminder notice of the participant’s eligibility to participate in the plan and applicable deadlines as well as any required documents upon a participant’s request.
· Effective date: Plan years after December 31, 2022
· Applicable plans: 401(a), 401(k), 403(b), and 457(b) plans