This article was updated November 1, 2023.
The Consolidated Appropriations Act of 2023 was signed into law by President Joe Biden on December 29, 2022. The bill is known as Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 of 2022, because its provisions aim to enhance the 2019 SECURE Act.
The bill contains sweeping changes designed to make benefit plans more attractive to employers and employees.
While some provisions took effect January 1, 2023, many will continue to roll out over the next few years and plan amendments will generally not need to be made until 2025. Below is a summary of some of the effects of the act on employee benefit plans:
The following provisions are effective immediately.
The act expands self-correction options under Employee Plans Compliance Resolution System (EPCRS) to allow for more types of errors to be corrected internally and to exempt certain failures from excise tax.
Roth Matching Contributions
Employers have the option to permit employees to elect all or some of their matching and nonelective contributions to be treated as Roth contributions.
Required Minimum Distributions (RMDs)
The age requirement to begin taking RMDs increased from 72 to 73 in 2023. The age will then gradually increase to age 75 in 2033. The penalty for not taking an RMD decreased from 50% to 25%. In some cases, the penalty is 10% if corrected within two years.
Effective for Plan Years Beginning in 2024
The following provisions are effective in 2024.
Employer Matching on Student Loan Payments
Employers have the option to make matching contributions to 401(k) plans, 403(b) plans, or SIMPLE IRAs on employees’ qualified student loan payments. Employees who receive student loan matching contributions are required to certify annually that they made such student loan payments, and the employer may rely on that certification.
Emergency Withdrawals and Expenses
The act allows certain distributions for emergency expenses due to immediate and unforeseen financial needs relating to personal or family expenses. Only one distribution, not to exceed $1,000, is permissible per year and the employee must repay the distribution within three years and can’t take another distribution until the repayment is complete. Employers may rely on employee certification of such emergency needs.
In addition, emergency savings accounts may be linked to retirement plans for employees to take withdrawals without penalty.
Mandatory Distribution Threshold
Effective in 2024, the involuntary distribution limit was increased from $5,000 to $7,000.
Catch Up Contributions
Plan participants ages 50 and older can continue to make catch-up contributions after 2023, regardless of income.
Correction of Errors in Auto Enrollment and Escalation
The grace period for correcting, without penalty, reasonable errors in administering automatic enrollment and automatic escalation features occurring after December 31, 2023, is nine and a half months after the end of the plan year in which the errors were made.
Effective for Plan Years Beginning in 2025
The following provisions are effective in 2025.
New 401(k) plans established after December 29, 2022, will be required to automatically enroll employees in the plan initially at 3%, but not more than 10%. Plans will also be required to increase the deferral rate by 1% up to at least 10%, but not more than 15%. Employees may opt out and withdraw their contributions within 90 days of the first contribution without penalty. There are some exceptions for businesses with 10 or fewer employees, and those in business fewer than 3 years.
Effective for Plan Years Beginning in 2026
The following provisions are effective in 2026.
Originally effective in 2024, but now extended to 2026, catch-up contributions permitted under the plan must be made on a Roth basis for employees whose wages from the same employer were over $145,000 in the prior year.
We’re Here to Help
To learn more about how SECURE 2.0 will affect you or your company, contact your Moss Adams professional.
You can also find additional insights at our Employee Benefit Plans Services page.