What does the SECURE 2.0 Act of 2022 mean for employers?

The applicable RMD age for someone who turned age 73 in 2023 is age 72. The employee will need to begin taking RMDs no later than April 1, 2023 (assuming the employee is an owner or a non-owner and there is no delay for a later termination date).

The applicable RMD age for someone who turns age 73 in 2024 is age 73. The employee must begin taking RMDs no later than April 1, 2025 (assuming the employee is an owner of a non-owner and there is no delay for a later termination date).

This change is a required provision that goes into effect for 2023 RMDs. No plan sponsor action is needed for retirement plans at this time.

Roth provision – SECURE 2.0 Act: Plan sponsors may choose to update retirement plan features to allow participants to elect to receive employer matching and nonelective contributions as Roth contributions. Employer matching and nonelective contributions can be treated as Roth contributions. Matching and nonelective contributions designated as Roth contributions are not excludable from income and must be 100% vested when made.

While this provision is available now there are remaining questions, such as the requirement that the contribution be 100% vested, how participants can elect to have their employer contribution made as Roth, and tax-related impacts.

In the meantime, the plan may be able to offer the ability to convert a vested account balance to a Roth money type via an in-plan Roth rollover or conversion. Your plan provider can further discuss this with you to help determine if it’s a plan design feature you would like to move forward with.

Hardship self-certifications: The participant self-certification provision of the SECURE 2.0 Act states a retirement plan sponsor may rely on an employee’s written self-certification that their distribution meets the requirements of one of the seven safe harbor hardship reasons, and the distribution is not in excess of the amount required to satisfy the financial need and that they do not have alternate means reasonably available to satisfy such need.

Participants will be asked to certify they will preserve their documentation of the hardship and provide such documentation later, if requested. A plan sponsor who elects this method is not required to substantiate the hardship at the time it's taken.

For plans that choose and implement self-certification for hardship withdrawals, participants are able to self-certify through an online experience that follows the rules set forth in SECURE 2.0.

It is possible that during a plan audit, an auditor (RIS/Annual Form 5500) may request of the plan sponsor that participants produce source documents.

It’s expected the Treasury will provide guidance to address when a plan sponsor has knowledge to the contrary that the employee meets the requirements of a safe harbor hardship.

To be eligible for a qualified disaster recovery distribution (QDRD), a participant’s “principal place of abode” must have been in the disaster area during the incident period, and the participant must have sustained an economic loss because of the disaster.

The penalty-free tax treatment applies to distributions for disasters occurring on or after Jan. 26, 2021. The distribution is capped at $22,000 per disaster from retirement savings. Sponsors can offer the relief permanently so it’s automatically available whenever participants are affected by a qualified federally declared disaster.

The distribution must be made no later than 179 days after the disaster applicable date which is the later of:

1. the first day of the disaster incident period, or
2. the date of the disaster declaration.

SECURE 2.0 Act allows Defined contribution (including Money Purchase), 403(b) and governmental 457(b) plans to temporarily double the maximum plan loan to the lesser of $100,000 or 100% of the participant’s vested benefit. Plans can also suspend loan repayments for up to one year (with a corresponding extension of the loan term).

Effective for plan years beginning after Dec. 31, 2022, plan sponsors no longer have to send certain required notices and disclosures to unenrolled participants as long as they provide the unenrolled participant a Summary Plan Description and other notices upon their initial eligibility. SECURE 2.0 requires retirement plans to send unenrolled participants an annual reminder notice of their eligibility to participate in the plan and any election deadlines. The notice also needs to detail the key benefits and rights under the plan, with a focus on employer contributions and vesting provisions.

Retirement plan sponsors must now track consecutive years of 500 hours for plans that have an hour requirement for eligibility greater than 500 hours or an eligible employee exclusion based on a service requirement greater than 500 hours of service. With the SECURE Act of 2019, tracking of hours began on or after Jan. 1, 2021, for 401(k) plans with the first potential group of 401(k) LTPT employees generally entering effective Jan. 1, 2024 (in limited instances the service requirement could be met in 2023), with three consecutive years of 500 hours or more. Effective Jan. 1, 2025, under SECURE 2.0, the requirement for 401(k) plans decreases to two consecutive years beginning with computation periods on or after Jan. 1, 2021, of 500 hours or more. Pre-2021 service is disregarded for eligibility and vesting purposes for 401(k) plans.

With SECURE 2.0, tracking of hours began Jan. 1, 2023, for 403(b) plans with the first potential group of 403(b) LTPT employees entering with two consecutive years of 500 hours effective Jan. 1, 2025. Pre-2023 service is disregarded for eligibility and vesting purposes for 403(b) plans.

Plans are required to inform qualifying employees when they become eligible. The legislation only requires entry for deferral purposes. Plans aren’t required to provide matching or other employer contributions and may exclude qualifying employees from testing.

Starting with plan years beginning on or after Jan. 1, 2025, SECURE 2.0 requires automatic enrollment features for newly established 401(k) and 403(b) plans with some exceptions. Newly established plans are those established on or after Dec. 29, 2022.

EACA auto-design features should be added before the first day of the plan year. If the plan needs additional updates, plan sponsors are encouraged to add this provision sooner than later to minimize the impact of multiple updates.

This also applies to employers joining a multiple employer plan (MEP) or pooled employer plan (PEP) on or after Dec. 29, 2022. Based on guidance provided in Notice 2024-02:

• If a grandfathered outside plan joins a PEP as a participating employer or joins a grandfathered plan of an existing participating employer in a PEP, the ongoing plan in the PEP remains grandfathered.
• In all other situations--a non-grandfathered outside plan joins a PEP as a participating employer or grandfathered plan joins a non-grandfathered plan of an existing participating employer in a PEP—the ongoing plan in the PEP will be a non-grandfathered participating employer plan. This does not impact the rest of the PEP.

The default contribution rate during the first year must be at least 3%, but not more than 10%, plus an automatic contribution increase of 1% per year thereafter up to a maximum of at least 10%, but not more than 15%. Participants have the option to elect to opt out of these provisions.

After Jan. 1, 2024, SAFO distributions will continue to be made but with the appropriate limit defined by the plan document.

Plan sponsors using a standard plan document from any provider with a $5,000 SAFO limit will likely automatically have the SAFO threshold increased to $7,000.

Plan sponsors may rely on self-certification that an employee made qualified student loan repayments during the plan year. The self-certification may be done on an annual basis. Self-certification relieves the burden of the employer to require proof from the employee.

The employee is responsible for certifying annually to the employer that such loan payments are qualified. Employees have 90 days to certify after plan year-end.

Plans may test employees receiving student loan matches separately for the actual deferral percentage (ADP) test. Testing cannot proceed until student loan certification is completed.

Matching contributions must be made at the same rate as regular contributions and only to employees otherwise eligible for matching contributions.

Contributions are limited to the 402(g) limit, reduced by any elective deferrals made by the employee for such year.

Further guidance and clarification on several functional details are still needed.

Plans may allow participants to withdraw up to $1,000 in a year from their retirement account to pay for emergency expenses.

The plan sponsor may rely on participant self-certification that the participant is using the money for an unforeseeable or immediate financial need related to a necessary personal or family emergency.

An individual may only take one emergency expense withdrawal in any calendar year. Following an emergency withdrawal, participants may not apply for a subsequent, annual withdrawal within the next three calendar years unless:

• The previous withdrawal is fully repaid to the retirement plan.
• The subsequent, aggregate employee contributions to the retirement plan equal or exceed the prior distribution.

A qualifying emergency expense withdrawal is exempt from the 10% additional income tax on early withdrawals from a retirement plan.

Protected benefit rules apply to the emergency expense withdrawal

Plans may allow participants who self-certify that they experienced domestic abuse to withdraw up to the lesser of $10,000 or 50% of their vested retirement account. Such withdrawal may be made during a one-year period beginning on any date on which the individual is a victim of domestic abuse by a spouse or domestic partner.

Further clarification is needed on how to treat the $10,000 limit.

Participants may repay the withdrawal over 3 years and the participant can recover applicable income taxes paid on their individual tax filing.

A qualifying domestic abuse expense withdrawal is exempt from the 10% additional income tax on early withdrawals from a retirement plan.

Protected benefit rules apply to domestic abuse withdrawal.

The increased amounts will be indexed for inflation after 2025. Plan sponsors need to work with their payroll providers to ensure they can accommodate the changing limits for different ages by tracking employees aged 50-59 with regular catch-up contributions, aged 60-63 with the higher catch-up amount, and aged 64 and older return to the regular catch-up amount.