The Quick & Dirty on SECURE 2.0 Impacting your 401k Plan (for Plan Administrators)
Sweeping changes for retirement plans were signed into law on December 29, 2022 as part of the Consolidated Appropriations Act. The retirement plan provisions are known as “SECURE 2.0” and it builds upon the foundation laid by the 2019 “Setting Every Community Up for Retirement Enhancement” Act (now referred to as “SECURE 1.0”). SECURE 2.0 contains a whopping 92 provisions, which can be viewed as almost universally good, with “good” being defined as “helpful to the cause of promoting retirement security.”
Many of the provisions are effective immediately (i.e., 1/1/23 or before), so now is a good time for employers to begin familiarizing themselves with the new rules. Not all of the 92 provisions apply to employer 401k plans, many of the new rules apply to personal retirement accounts (IRAs, ROTH IRAs, etc.) and small employer retirement plans like SIMPLE and SEP IRAs. We have covered those in a separate post which you can access here.
The charts below summarize describe SECURE 2.0’s key provisions that impact employer 401k plans. We’ve separated them based on the year they go into effect and then ordered them based on the number of plans likely impacted from greatest to least.
The following provisions are effective immediately – as in the 2023 plan year.
Notable here is that employees will be able to elect whether they want matching contributions to be made to their ROTH accounts. Also, a nice reprieve for plan sponsors notice-delivery requirements.
The following provisions go into effect in 2024.
Most notable is the shift to mandating that catch-up contributions for “high-earners” are required to be made as ROTH contributions. This was done to increase tax revenues (ROTH contributions are subject to tax now). Also, of note is the ability to apply the 401k match formula to employee’s student loan payments. The matching contributions would go into the 401k to help younger employees build retirement savings while at the same time paying down student debt.
The following provisions go into effect in 2025.
Most notable is the increase in catch-up contribution limits for those ages 60-63 and the requirement to make “long-term, part-time” employees eligible is deferred from 2024 to 2025.
Finally, the following requirement to mail paper statements once per year goes into effect in 2026.
Presumably, to appease the mail carrier organizations as most all other notices continue to gravitate towards full e-delivery.
If you have any questions, or if you would like more information, please contact Chris Thomas at 301.245.3587 or cthomas@fortywadvisors.com.