SECURE Act 2.0 Makes Sweeping Changes to Retirement Plans

In December 2022, Congress passed an omnibus spending bill that included a significant portion dedicated to the Secure 2.0 Act of 2022, which makes significant changes and enhancements to retirement planning laws in the United States. We’ve included a high-level summary of some of the key provisions of the Act but note there is a lot of detail that will require actions by plan sponsors. We strongly encourage you to speak with your plan advisors and CPA about the provisions that might affect your plans.

Expansion of Automatic Enrollment in Retirement Plans
  • Effective for plan years beginning after 12/31/24
  • Must allow for permissible withdrawals within 90 days of the first elective contribution
  • Provide for automatic contributions of at least 3%, and not more than 10%, during the first year of participation unless the participant elects otherwise. Provide for automatic escalation by 1% annually (unless the participant elects otherwise) to at least 10% but not more than 15% (but no more than 10% for years ending before 1/1/25 for plans that are not safe harbor plans)
  • If the participant makes no affirmative election, automatically contributed amounts must be invested in a qualified default investment alternative under DOL regulations
  • Not required for plans established before the Act’s enactment date, SIMPLE 401(k) Plans, governmental plans, plans maintained by employers in existence for less than 3 years or plans maintained by employers with not more than 10 employees
Increasing the age for required minimum distributions from retirement plans
  • Effective for distributions required to be made after 12/31/22
  • Under 2022 law, distributions are required for those over age 72, starting April 1 of the year after one turns 72 years old
  • The new Act increases the age threshold to 73 starting 1/1/23, and to 75 starting 1/1/33
A higher catch-up contributions limit to apply at age 60-63 - but with a catch
  • Effective for plan years beginning after 12/31/24
  • The annual limit for catch-up contributions increases to $7,500 for 2023 and, starting in 2025, to $10,000 for individuals who attain ages 60-63 (with lower limits for SIMPLE plans). These limits then will be indexed to inflation starting in 2026.
    • The “catch” – for participants with income greater than $145,000 in 2025 (and indexed for inflation thereafter), the catch up contributions up to $10,000 will be subjected to mandatory Roth tax treatment (i.e., these contributions cannot be made pre-tax)
Designation of employer matching or nonelective contributions as Roth contributions
  • Effective immediately after date of enactment
  • Under existing law, employers were not permitted to make these contributions as Roth contributions; however, now after a plan is amended to allow an election, participants may elect to designate some or all matching or nonelective contribution to be Roth contributions (but only to the extent that a participant is fully vested in these contributions)
Treatment of student loan payments as elective deferrals for purposes of matching contributions
  • Effective for contributions beginning after 12/31/23
  • A plan sponsor may elect to make matching contributions – under a 401(k), 403(b) or SIMPLE IRA – with respect to “qualified student loan payments.”
  • Governmental plan sponsors will also be permitted to make matching contributions in a 457(b) plan or another plan with respect to such payments.
Updating dollar limit for mandatory distributions from workplace retirement plan
  • Effective for distributions after 12/31/23
  • The act increases, from the current range of $1,000 to $5,000, to a new range of $1,000 to $7,000, the threshold for employers to transfer former employees’ retirement accounts to an IRA.

The provisions noted above are some of the many provisions of the Secure 2.0 Act. For a detailed assessment of how the change in law might impact your retirement plans, please contact your BMF Advisor or your plan advisors.

About the Authors

James E. Merklin
James E. Merklin
Partner, Assurance and Advisory


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