ALERT: SECURE 2.0 Update

As part of the Consolidated Appropriations Act of 2022, provisions were enacted under what is known as SECURE 2.0. A number of those provisions became active upon the bill becoming law in 2023, but there are other provisions and new opportunities available to retirement plans beginning in 2024 and the following years.

Below is a summary of the provisions that are garnering the most observation and conversation as we await formal guidance from the Treasury Department. As guidance becomes available for these as well as other provisions of the Act, we will provide additional alerts to help you navigate your retirement plan to the best possible outcomefor you and your participants.

• Long Term Part Time (LTPT) Employees – this provision was added as part of the original SECURE legislation and was updated as part of the SECURE 2.0 bill. On November 24th, the IRS issued proposed guidance for this provision for review prior to the guidance becoming final. We will be sending a separate alert regarding the guidance soon.
• Force Out Distributions – beginning in 2024, plans are allowed to force out any participant who has a vested account balance of $7,000 or less (up from $5,000) with appropriate notice and time to respond. Balances less than $1,000 may be paid directly to the participant, however balances between $1,000 and $7,000 must be rolled into an IRA for the benefit of the participant. This is optional for the plan and requires a plan amendment.
• Personal Emergency Distributions – This allows the participant to request a distribution of up to $1,000 per year for a self-certified personal emergency. The distribution is exempt from the 10% penalty and may be repaid within a three-year period. No additional emergency distribution would be available until the original is paid back or the three-year period has expired. This is an optional provision and not required, and a plan amendment would be required.
• Retirement Savings Lost and Found – The Department of Labor, along with the Internal Revenue Service are creating an online searchable database that will allow retirement savers the opportunity to find information about an account that may have been forgotten or moved. Details on how to report participants are yet to be released.
• Required Minimum Distributions (RMD) from Roth Accounts – beginning with 2024 RMD distributions, Roth balances will not be included in the RMD calculation. This brings retirement plan Roth accounts in line with existing Roth IRA rules. This is a required provision and will require a plan amendment.
• Pension Linked Emergency Savings Account (PLESA) - Employers may offer Non-Highly Compensated Employees pension-linked emergency savings accounts and may automatically opt employees into these accounts at no more than 3% of their salary. Accounts are capped at $2,500 (or lower as set by the employer). Contributions are treated as elective Roth deferrals for purposes of retirement matching contributions if elected. Once the cap is reached, the contributions may be stopped or continue as Roth deferrals. The first four distributions from this account would not be subject to any distribution fees to the participant. This is an optional provision and a plan amendment would be required.
• Student loan payments as deferrals for the purpose of matching contributions – This topic has received a lot of attention and is finally becoming an option for plans. Plans may consider student loan payments made by participants as deferrals and make matching contributions to the plan for that participant. The participant can self-certify the payments to the employer to receive the match. For testing purposes, the loan payments are not considered a deferral and are not tested if applicable. This is an optional provision and will require a plan amendment.
• Starter 401k Plan - For employers who currently do not have a Qualified plan, they may create a “starter” 401(k) plan where participants are automatically enrolled between 3% and 15% deferral rate, with a contribution limit of $6,000. The limit is subject to an annual index increase.

As a reminder, guidance was issued regarding catch-up contributions for High Income Employees and the requirement that they be made as Roth contributions. This provision has been delayed for two years, allowing providers time to update systems that handle this information. We expect additional guidance as we approach the 2026 effective date.

We are still watching for guidance on the following provisions that were effective in prior years:

• Ability to add a safe harbor non-elective contribution mid-year or after plan year end (SECURE 2019)
• Participant self-certification of hardship requests (SECURE 2.0)
• Ability to allow employer contributions to be made as Roth contributions (SECURE 2.0)

While we know what the provisions and effective dates are for SECURE 2.0, we continue to watch for guidance and direction from the appropriate agencies. As that guidance is released, we will provide summaries to you as soon as possible.

If you have any questions about your plan or the Act, please contact Brad Bechtel at 316.267.7231 or by email at Bradly.Bechtel@aghlc.com.