SECURE 2.0 Act Adopted in Federal Spending Bill

On December 29, 2022, President Biden signed the Consolidated Appropriations Act, 2023 (HR 2617) into law. The main purpose of this legislation is to continue funding certain government operations. However, the bill also adopts the SECURE 2.0 Act of 2022 (SECURE 2.0) relating to retirement plans.

SECURE 2.0 follows the Setting Every Community Up for Retirement Enhancement Act (SECURE Act), which was passed as part of the 2020 appropriations bill. SECURE Act 2.0 introduces new provisions affecting how retirement plans are offered, and it amends some of the provisions found in the SECURE Act.

As background, SECURE 2.0 comes after multiple follow-ups to the SECURE Act that were introduced in the House and Senate. First, the Securing a Strong Retirement Act was passed in the House in March 2022. Next, the Senate Health, Education, Labor and Pensions Committee approved a version known as the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg (RISE & SHINE) Act in June 2022. Finally, the Senate Finance Committee approved the Enhancing American Retirement Now (EARN) Act in September 2022. SECURE 2.0 includes provisions from each of those bills.

SECURE 2.0 is broken up into seven titles, and some of the major provisions affecting employer-sponsored retirement plans are summarized as such:

• Title I: Expanding Coverage and Increasing Retirement Savings
  • Requires new 401(k) and 403(b) plans to institute automatic enrollment and escalation. (Sec. 101)
  • Increases start-up credit for small employers who begin to offer retirement plans to their employees. (Sec. 102)
  • Changes the federal Saver’s Credit to a Saver’s Match that will be deposited into taxpayers’ retirement plan or IRA and provides that the Treasury will publicize the match. (Secs. 103 and 104)
  • Allows 403(b) plans to participate in open multiple employer plans (MEPs) and pooled employer plans (PEPs). (Sec. 106)
  • Increases the age for required minimum distributions from age 72 (as provided in the SECURE Act) to age 73 beginning in 2023 and age 75 beginning in 2033. (Sec. 107)
  • Indexes the IRA catch-up limit and allows for additional catch-up contributions at ages 60, 61, 62 and 63. (Secs. 108 and 109)
  • Allows student loan repayments to be treated as elective deferrals for retirement plan matching purposes. (Sec. 110)
  • Allows an annual tax-free distribution for emergency expenses. (Sec. 115)
  • Permits automatic portability transfers from a terminating employee’s IRA to their new employer’s retirement plan. (Sec. 120)
  • Changes SECURE Act provision requiring eligibility for long-term part-time workers to require that participation be offered to employees working part-time for two years (down from the three years required in the SECURE Act). (Sec. 125)
  • Allows for transfers from 529 plans to Roth IRAs, provided certain conditions are met. (Sec. 126)
  • Permits the creation of emergency savings accounts for non-highly compensated employees to use in conjunction with their defined contribution plans. (Sec. 127)
  • Enhances 403(b) plans by allowing them to utilize collective investment trusts. (Sec. 128)
• Title II: Preservation of Income
  • Amends the requirements imposed on qualifying longevity annuity contracts (QLACs). (Sec. 202)
  • Creates insurance-dedicated exchange-traded funds. (Sec. 203)
• Title III: Simplification and Clarification of Retirement Plan Rules
  • Allows plan sponsors to choose not to recoup overpayments made to retirees. (Sec. 301)
  • Reduces the tax penalty for failure to take required minimum distributions from 50% to 25% (and to 10% if the distribution is from an IRA and the failure is corrected in a timely manner). (Sec. 302)
  • Instructs DOL to create online database retirement savers can use to locate any pension or 401(k) they’ve lost track of. (Sec. 303)
  • Increases the limit for employers to automatically distribute out terminated employees to $7,000 (up from $5,000). (Sec. 304)
  • Expands the Employee Plans Compliance Resolution System (EPCRS). (Sec. 305)
  • Limits repayment of qualified birth or adoption distributions to three years. (Sec. 311)
  • Allows employers to accept employee self-certification of the need for hardship withdrawals. (Sec. 312)
  • Provides opportunity to amend plan to increase benefits through the employer’s tax return due date. (Sec. 316)
  • Limits the notices employers must provide to unenrolled but eligible participants of the retirement plan. (Sec. 320)
  • Requires paper statements be provided once annually for defined contribution plans and once every three years for defined benefit plans. (Sec. 338)
• Title IV: Technical Amendments
  • Makes certain technical and clerical changes to the SECURE Act. (Sec. 401)
• Title V: Administrative Provisions
  • Allows for plan amendments reflecting SECURE 2.0 changes to be made on or before the last day of the first plan year beginning on or after January 1, 2025 (or 2027 for governmental plans). (Sec. 501)
• Title VI: Revenue Provisions
• Title VII: Tax Court Retirement Provisions

Like the SECURE Act, this legislation will overhaul of many of the retirement regulations that have been in place for decades. Some provisions of the bill are effective upon enactment; others are effective for plan years beginning January 1, 2023, while others will become effective at later dates. Retirement plan sponsors should work with their plan advisers, recordkeepers and other service providers to amend their plan as necessary.

Consolidated Appropriations Act, 2023 (SECURE Act begins on page 817) »