SECURE 2.0 Act of 2022 — A list of employer “to-dos”
President Biden signed The Consolidated Appropriations Act, 2023 in late December 2022. The final bill included the SECURE 2.0 Act of 2022 (“SECURE 2.0”) which contains several provisions that impact retirement plans, plan sponsors, and plan participants. Here are some of those provisions and the actions employers may need to take as a result.
Provisions that require action
Provision: Increased Age for Required Minimum Distributions (RMD). Starting January 1, 2023, the RMD age increased from 72 to 73. On January 1, 2032, the RMD age will increase from 73 to 74.
Action: Employers should work with plan providers to change administrative procedures to address this change during 2023.
Provision: (Effective for distributions made after December 31, 2022.) Coverage of Long-Term, Part-Time Workers. In 2019, the original iteration of the SECURE Act required employers to treat long-term part-time employees as eligible to participate in retirement plans after three consecutive years of having at least 500 hours of service in each year. SECURE 2.0 reduces the three-year consecutive service requirement to two years. Note that part-time service prior to 2021 is not counted for eligibility or vesting purposes.
Action: Employers should develop a process now to identify long-term part-time employees who will qualify under these new rules in future years and make sure to send notice of plan eligibility to those employees who will be eligible.
Provision: (Effective for plan years beginning after December 31, 2024.) Simplified Notice Requirement for Unenrolled Employees. This SECURE 2.0 provision reduces the periodic notification burdens required of plan sponsors related to employees who are eligible to participate in a retirement plan but choose not to participate.
Action: Before SECURE 2.0, plan sponsors of defined contribution plans were required to furnish eligible but unenrolled employees with all notices and other documents, such as summary plan descriptions (SPDs). Now employers may provide an annual notice reminding employees of their eligibility, the deadlines and process to enroll, and the key benefits and rights of the plan with a focus on employer contributions and vesting provisions.
Provision: (Effective for calendar years beginning after December 31, 2023.) Treatment of Student Loan Repayments as Elective Deferrals. Effective January 1, 2024, employers will be allowed to make matching contributions for plan participants who make Qualified Student Loan Payments (QLSPs). Employers may rely on certification of QSLP provided by participants. These matching contributions must be made to all participants eligible for the employer matching contribution and at the same rate that applies for regular elective deferrals. This new rule applies to 401(k), 401(b), SIMPLE IRAs, and governmental 457(b) plans. Further, the QSLP matching contributions may be used in safe harbor 401(k) plans and may be subject to any applicable vesting schedule.
Action: Employers should consider this available plan design feature during 2023 for implementation at the start of the new year. This may help employers attract and retain employees burdened by student loans.
Provision: (Effective for distributions made after December 31, 2023.) Hardship Withdrawal – Employee Certifications. For the first plan year following the enactment of SECURE 2.0, employers may rely on employee certification of the deemed hardship conditions needed to support a plan’s hardship distribution.
Action: Less action required. This new rule should reduce some of the administrative burdens and risks associated with the administration of hardship distributions .
Key to remember: The SECURE 2.0 Act, passed in December, 2022 contains several provisions that may require employers to take action.