SECURE 2.0 Is Here!

SECURE 2.0 is here! It showed up under the Christmas tree appropriately because there are a lot of “gifts,” i.e. great provisions, in here! The downside is there are 92 provisions (!) and some are more technical than actionable in nature.

There are effective dates as far out as 2033, so what we’ve done here is to break it down into chunks by effective date so that you can focus on making decisions with the help of your plan advisor in stages, rather than having to digest the entire thing. Let’s dive in on the provisions we’ve cherry-picked from the long list for our clients. You can assume (unless it’s stated otherwise) that this applies to both 401k and 403b plans.

And, if your advisor isn’t talking to you about this or you need to bounce ideas on how SECURE 2.0 will affect your plan, please reach out.

Here's your first deadline to pay attention to: Plan Amendments by December 31, 2025.

Plan amendments to satisfy the Act must be adopted no later than the end of the 2025 plan year for nongovernmental plans, and the end of the 2027 plan year for governmental plans and collectively bargained plans. The Act also extends the plan amendment deadline for Setting Every Community Up for Retirement Enhancement Act of 2019, the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act, and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 to align with the plan amendment deadlines noted above.

What you need to take action on right now (effective already or for 2023):

Exemptions from the 10% early withdrawal penalty	Exemptions now include: Qualified Disaster: Permits participants who meet certain criteria to take a distribution up to $22,000 (aggregated across all of a participant’s plan accounts, including IRAs) due to a federal disaster declaration. Distributions are not subject to the 10% tax penalty and can be amortized over a three-year period. Amounts distributed prior to the disaster to purchase a home can be repaid. Qualified Birth or Adoption: The employee may repay that distribution to an eligible retirement plan accepting rollovers during the three-year period beginning on the day after the date on which the distribution was received. Terminally Ill: The employee must provide evidence required by plan administrator and distributions may be repaid.
Self-Certification for Hardship Withdrawals	Before: A plan administrator had to collect evidence that the participant qualified for a hardship withdrawal and keep it on file. Now: A plan administrator may rely on an employee certification that a hardship withdrawal is based upon an immediate and heavy financial need, as described in the Treasury regulations, and that the amount requested is no more than is necessary to satisfy the financial need. Similar rules apply to the administrator of a governmental 457(b) plan with respect to unforeseeable emergency withdrawals
Optional Treatment of Employer Contributions as Roth	Before: Employer matching or other contributions (profit sharing, etc.) could only be made pre-tax. Now: Employers now have the option to allow employees to decide whether to take employer matching and nonelective contributions on a Roth after-tax or pre-tax basis. The employer may deduct Roth contributions, but employees take Roth contributions as income, and contributions and earnings would be subject to normal Roth rules thereafter. An employer may designate matching contributions or nonelective contributions as Roth contributions, provided that the participant is fully vested in such Roth employer contributions.
Required Minimum Distributions:	Before: Age 70.5 was raised to 72 by SECURE 1.0. Now: For your plan participants that are soon eligible to take required minimum distributions, the age at those must begin has increased from 72 to 73 and will increase to 75 in 2033. It’s still important to track your participants and check the recordkeeper’s list of those eligible for RMDs. (Don’t forget currently employed owners as well.) Turn age 72 before 2023 = age 72; Turn age 73 before 2033 = age 73; Turn age 74 after 2032 = age 75.
Penalties for not taking the RMD:	Before: 50% of the required amount not taken Now: 25%. If an untaken RMD from a qualified plan or IRA is corrected in a timely manner, the excise tax has been reduced from 25% to 10%.
Removal of some notices to unenrolled participants:	Before: Send disclosures and notices every year to those eligible for the plan, including employees that didn’t enroll. Now: 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 2025 – You can start thinking about these now or wait until 2024. Some of these initiatives will require extra programming by recordkeepers and payroll companies.

Required automatic enrollment and escalation	Employers who start new retirement plans after December 29, 2022 will be required, beginning in 2025, to automatically enroll employees in their retirement plan with a beginning salary deferral of 3%–10%. Employees may opt-out! Deferrals must increase by 1% per year up to 10%–15%. Exemptions apply, including small businesses (10 or fewer employees), new businesses (less than 3 years old), and church and governmental plans. Existing plans adopted prior to December 29, 2022 are not subject to this provision.
Part-time and Seasonal Workers are Allowed to Join	Before: Long-term part-time employees – those who work 500 hours or more 3 years in a row – must be allowed to contribute to the plan. (They do not have to be matched or receive an employer contribution.) 2025: Individuals will now be eligible as of 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.
Catch-up Contribution Increased for Savers Aged 60-63	Before: The catch-up contribution maximum for employees age 50+ is $7,500 for 2023 ($3,500 for SIMPLE plans) and adjusted for inflation annually. 2025: Employees turning 60–63 will have a higher catch-up limit — 50% more than the regular catch-up limit or $10,000 more, whichever is greater.
New exclusions to 10% early withdrawal penalty	Long Term Care: Permits DC plans to distribute up to $2,500 (indexed) per year for the payment of premiums for certain specified long-term care insurance.