On December 29, 2022, the President signed into law the “Consolidated Appropriations Act, 2023” which contained several changes to law pertinent to retirement plans, namely: Division T, the “Secure 2.0 Act of 2022”. Outlined below are some significant provisions immediate applicable to our clients.

Provisions effective immediately or 2023

  • Required Minimum Distribution (RMD) age is increased from 72 to 73 effective January 1, 2023 and from 73 to 75 effective January 1, 2033. Any RMDs due April 1, 2023 are still required. [Sec. 107]
  • Long-term part-time service prior to 2021 is disregarded for vesting purposes. Long-term part-time coverage rules are expanded to 403(b) plans that are subject to ERISA (in 2025). [Sec. 125]
  • RMD barriers for lifetime annuities are removed. Benefits are now allowed to increase, as long as the increase is no more than 5% per year, and participants can choose to have a return of premium at death or period certain benefits without violating the RMD rules. [Sec. 201]
  • Plans are no longer required to bifurcate benefits for determining RMDs when part of the benefit is to be paid as an annuity. [Sec. 204]
  • Plans are no longer required to seek overpayments to be repaid to the plan. If they do seek to recoup overpayments, certain limitations apply. [Sec. 301]
  • Excise tax for all missed RMDs is reduced from 50% to 25%. It is further reduced to 10% if the correction is made timely. [Sec. 302]
  • EPCRS is expanded to include new types of errors. [Sec. 305]
  • Participants in governmental 457(b) plans are no longer required to request changes in their deferral rate prior to the beginning of the month in which the deferral will be made. Election can now be made at any time prior to the date that the compensation being deferred is available. [Sec. 306]
  • Employees are permitted to self-certify that they have had an event that meets the requirements of a hardship distribution or unforeseeable emergency withdrawal. [Sec. 312]
  • Statute of limitations created for excise taxes on excess contributions and required minimum distribution failures. [Sec. 313]
  • Disclosures, notices, or other plan documents are no longer required to be provided to any unenrolled participant in a defined contribution plan. [Sec. 320]
  • Early distribution 10% excise tax exception for substantial equal periodic payments is clarified to include amounts that are rolled over or exchanged for an annuity. [Sec. 323]
  • New early distribution 10% excise tax exception for terminally ill individuals. [Sec. 326]
  • PBGC variable rate premiums will no longer be indexed, stopping at $52/$1,000 of unfunded vested benefits. [Sec 349]

Provisions effective in 2024

  • $5,000 threshold for mandatory payout distributions is increased to $7,000. [Sec. 304]
  • Top-heavy testing can be performed separately on non-excludable and excludable employees [Sec. 310]
  • Plans are allowed to adopt discretionary amendments that increase participants’ benefits by the due date of the employer’s tax return, instead of the last day of the plan year in which the amendment is effective. [Sec. 316]
  • RMDs are no longer required from Roth accounts of employer plans. [Sec. 325]
  • Surviving spouse may elect to be treated as the deceased employee for RMDs. Allows benefits to start on the later of a) December 31 of the year in which the employee would have attained the applicable age or b) April 1 following the calendar year the surviving spouse attains the applicable age. [Sec. 327]
  • There will be additional disclosures required for lump sum windows. [Sec. 342]
  • There will be additional disclosures required for Annual Funding Notices (AFNs) [Sec. 343]
  • Plans have a grace period for auto-enrollment and auto-escalation failures. [Sec. 350]
  • All catch-up contributions to qualified plans will be subject to Roth tax treatment, unless the employee makes $145,000(indexed) or less. [Sec. 603]

Provisions effective in 2025

  • New 401(k) and 403(b) plans are required to have auto-enrollment with auto-escalation. [Sec. 101]
  • A catch-up limit equal to the greater of $10,000 or 150% of the normal limit will apply for participants who attain age 60 to 63. [Sec. 109]
  • A new, online, searchable database will be created for all qualified plans so participants can locate lost benefits. [Sec. 303]
  • The Treasury Secretary will issue sample direct rollovers and transfers forms to simplify and standardize the rollover process. [Sec 324]

Provisions effective in 2026

  • Defined contribution plans will be required to provide a paper statement at least once annually. The statement required every 3 years for defined benefit plans will be required to be a paper statement. [Sec. 338]

If you have any questions about how Secure 2.0 might impact your retirement plan, contact a Rudd and Wisdom consultant today.