Category Archives: SECURE 2.0

Things I Worry About (3): Automatic Enrollment (3)


401(k), 403(b), SECURE 2.0
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Key Takeaways

    • The SECURE Act 2.0 required that “new” 401(k) and private sector 403(b) plans automatically enroll their eligible employees, but not until plan years beginning after December 31, 2024…just weeks from now.
    • “New” plans include most that were established on or after the enactment date of SECURE 2.0—December 29, 2022.
    • Unfortunately, it is likely that some of the affected plan sponsors will fail to automatically enroll their eligible employees on a timely basis.
    • This article discusses corrections for those failures.

SECURE  2.0 was enacted on December 29, 2022. Among its provisions is a requirement that “new” 401(k) plans and private sector 403(b) plans must automatically enroll their eligible employees, but not until the first plan year beginning after December 31, 2024 (the “applicable date”). Since most participant-funded and participant-directed plans, such as 401(k)s and 403(b)s, operate on a calendar year, this article discusses the effective date as if it were for the 2025 calendar year—just weeks from now.

My last two blog posts, Things I Worry About (1) and Things I Worry About (2), discussed the general requirements and my concerns about which employees must be automatically enrolled.

This one looks at the provisions in SECURE 2.0 about correcting automatic enrollment failures, such as not enrolling the eligible employees when required.

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Things I Worry About (2): Automatic Enrollment (2)


401(k), 403(b), SECURE 2.0, SECURE Act
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Key Takeaways

  • The SECURE Act 2.0 requires that “new” 401(k) and private sector 403(b) plans automatically enroll their eligible employees, but not until plan years beginning after December 31, 2024…just weeks from now.
  • Unfortunately, there are unanswered questions about how the automatic enrollment requirement will be applied. This article discusses two of those.

SECURE Act 2.0 was enacted on December 29, 2022. Among its provisions is a requirement that “new” 401(k) plans and private sector 403(b) plans must automatically enroll their eligible employees, but not until the first plan year beginning after December 31, 2024 (the “applicable date”). Since most participant-funded and participant-directed plans, such as 401(k)s and 403(b)s, operate on a calendar year, this article discusses the effective date as if it were for the 2025 calendar year—just weeks from now.

My last blog post, Things I Worry About (1), discussed the general requirements and my concerns about those.

This one looks at two specific issues…automatic enrollment of “which” eligible employes and automatic enrollment of long-term, part-time employees.

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Things I Worry About: Automatic Enrollment (1)


401(k), 403(b), SECURE 2.0, SECURE Act
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This starts a new series of blog posts…Things I Worry About. I will number these, but they will be more episodic than sequential.

Key Takeaways

  • The SECURE Act 2.0 requires that “new” 401(k) and private sector 403(b) plans automatically enroll their eligible employees, but not until plan years beginning after December 31, 2024…just weeks from now.
  • There are some exceptions for small and new companies, but those exceptions expire as the number of employees grows or as time goes by.
  • I am worried that some of those plans may fail to begin automatically enrolling those employees next year, or as the companies grow, or as time goes by. The consequences of a failure can be significant.

SECURE Act 2.0 was enacted on December 29, 2022. Among its provisions is a requirement that “new” 401(k) plans and private sector 403(b) plans must automatically enroll their eligible employees, but not until the first plan year beginning after December 31, 2024. Since most participant-funded and participant-directed plans, such as 401(k)s and 403(b)s, operate on a calendar year, this article discusses the effective date as if it were for the 2025 calendar year—just over two months from now.

SECURE 2.0 defines a “new” plan as one established on or after its enactment date—December 29, 2022.

In effect, the law has two effective dates. The first is that the 401(k) or private sector 403(b) plan must have been established on or after December 29, 2022 and the second is that those plans are not required to begin automatically enrolling until January 1, 2025. (A plan established after December 31, 2024 will need to automatically enroll their eligible employees immediately.)

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Inclusion of Guaranteed Retirement Income Solutions in 401(k) Plans: Impact of SECURE 2.0


SECURE 2.0, SECURE Act

The SECURE 2.0 Act of 2022 expressed Congressional policy to encourage defined contribution plans, such as 401(k) plans, to offer insured retirement income to their participants. The Act included several provisions that ease compliance barriers when insured income products are offered in plans.

Read more from the Retirement Income Institute Alliance for Lifetime Income.

 

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Most Read Insights – Summer 2023


best interest, DOL, fiduciary, IRA, prohibited transaction, rollovers, SECURE 2.0

Each calendar quarter, benefits and executive compensation partner Fred Reish posts approximately 12 articles on his blog, fredreish.com. This quarterly digest provides links to the most popular posts during the past three months so that you can catch up on what you missed or re-read them.

Rollovers, Regulation, Litigation: Where Are We and What’s Next?

The recent decisions on the U.S. Department of Labor’s (DOL) interpretation of fiduciary status are significant but limited in scope. Fiduciary status for plan-to-IRA rollover recommendations, standing alone, has been vacated. But other important transactions, such as IRA transfers, have not.

The Secure Act 2.0: The Most Impactful Provisions #14 — Automatic Portability for IRA Force-Outs

Current law permits plans to force out distributions of accounts with less than $5,000 in benefits if a departed employee does not affirmatively elect to receive their benefits. (That amount is increasing to $7,000 in 2024.) The “force-out” amounts must be rolled over into an IRA if the account balance is at least $1,000.

The DOL’s Regulatory Agenda and a New Fiduciary Rule

On September 8, the DOL sent a new fiduciary rule and list of prohibited transactions to the Office of Management & Budget in the White House. The DOL proposed amendments to prohibited transaction exemptions, including PTE 84-24, the exemption used for fiduciary rollover recommendations into individual annuity contracts.

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The SECURE Act 2.0: The Most Impactful Provisions #14 — Automatic Portability for IRA Force-outs


fiduciary, IRA, prohibited transaction, rollovers, SECURE 2.0
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Key Takeaways

  • Current law permits plans to force out distributions of accounts with less than $5,000 in benefits if a departed employee does not affirmatively elect to receive his or her benefits. (That amount is increasing to $7,000 in 2024.)
  • The “force-out” amounts must be rolled over into an IRA if the account balance is at least $1,000.
  • SECURE 2.0 permits the provider of the IRAs that receive the forced-out amounts to continuously reach out to recordkeepers to determine if the IRA owner has begun participating in a plan that is recordkept by a participating recordkeeper and, if so, to transfer the IRA amounts to the IRA owner’s account in the new plan.
  • The provider of the IRAs must act as a fiduciary for that purpose and therefore must act in the best interest of the IRA owner.
  • The provider can collect a reasonable fee from the force-out IRA for those services and the fee will not be considered a prohibited transaction.

The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022.

SECURE Act 2.0 has over 90 provisions, some major and some minor; some mandatory and some optional; some retroactively effective and some that won’t be effective for years to come. One difference between SECURE Act 2.0 and previous retirement plan laws is that many of 2.0’s provisions are optional . . . that is, plan sponsors are not required to adopt the provisions, but can adopt them if they decide that the change will help their plans and participants. This series discusses the provisions that are likely to be the most impactful, either as options or as required changes.

This article is about an effort by Congress to protect the benefits of former employees with small account balances who have been forced out of plans into default rollover IRAs.

Continue reading The SECURE Act 2.0: The Most Impactful Provisions #14 — Automatic Portability for IRA Force-outs →

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Most Popular Insights for Spring 2023


SECURE 2.0

Each calendar quarter, I post approximately 12 articles on my blog. This quarterly digest provides links to the most popular posts during the past three months so that you can catch up on what you missed or re-read them.

The SECURE Act 2.0: The Most Impactful Provisions #9 — Roth Treatment for Catch-up Contributions for Higher Compensated

Prior to the SECURE Act 2.0 all older participants, regardless of compensation level, could deduct their catch-up contributions. However, under the new law — beginning in 2024 — participants who earn more than $145,000 will only be able to make Roth catch-up contributions. As a result, those catch-up contributions will be taxable to those participants, but the contributions will not be taxable when withdrawn, and if held for the qualifying period, the earnings will not be taxable either.

The Secure Act 2.0: The Most Impactful Provisions #10 — Moving 529 Assets to a Roth IRA

Prior to the SECURE Act 2.0, if a 529 plan beneficiary did not use all of the funds for qualified education expenses (for example, the beneficiary graduated without using all of the funds in the 529), the options for withdrawal were not particular attractive. However, under the new law, those “excess” funds can be transferred to a Roth IRA for the 529 beneficiary, subject to certain limitations. As a result, contributions can now be made to 529 plans with the knowledge that, if not all of the funds are used for education of the beneficiary, the excess funds can be transferred to a Roth IRA for that beneficiary (and the other options, such as transferring the money to a 529 for a different beneficiary remain available).

The Secure Act 2.0: The Most Impactful Provisions #13 — Starter 401(k) Plans and Safe Harbor 403(b) Plans

Most employees who work for large and mid-sized employers have the opportunity to defer money from their paychecks into a savings-based retirement plan. That is not the case with many small employers, though, where large numbers of employees for firms that do not offer plans. However, savings-based plans are critical for employees to obtain financial security in retirement. There are studies that show that employees who can defer into retirement plans will save much more for retirement than those who do not have access to plans. Based on surveys, small employers do not offer plans because they are worried about the cost and administrative complexity of setting up and operating plans. To allay that concern, Congress created, in SECURE 2.0, a new type of plan that is simple and low cost.

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The SECURE Act 2.0: The Most Impactful Provisions #13 — Starter 401(k) Plans and Safe Harbor 403(b) Plans


401(k), 403(b), SECURE 2.0
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Key Takeaways

  • Most employees who work for large and mid-sized employers have the opportunity to defer money from their paychecks into a savings-based retirement plan. That is not the case with many small employers, though, where large numbers of employees work for firms that do not offer plans.
  • However, savings-based plans are critical for employees to obtain financial security in retirement. There are studies that show that employees who can defer into retirement plans will save much more for retirement that those who do not have access to plans.
  • Based on surveys, small employers do not offer plans because they are worried about the cost and administrative complexity of setting up and operating plans.
  • To allay that concern, Congress created, in SECURE 2.0, a new type of plan that is simple and low cost: “Starter” 401(k)s and “Safe Harbor” 403(b)s. The purpose of this new plan design is to encourage small employers to set up plans that enable their workers to save for retirement through deductions from their paychecks.

The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022.

SECURE Act 2.0 has over 90 provisions, some major and some minor; some mandatory and some optional; some retroactively effective and some that won’t be effective for years to come. One difference between SECURE Act 2.0 and previous retirement plan laws is that many of 2.0’s provisions are optional…that is, plan sponsors are not required to adopt the provisions, but can adopt them if they decide that the change will help their plans and participants. This series discusses the provisions that are likely to be the most impactful, either as options or as required changes.

This article is about an effort by Congress to extend plan coverage for workers at smaller employers by creating a new and straightforward type of low-cost plan:  the Starter 401(k) and Safe Harbor 403(b).

Continue reading The SECURE Act 2.0: The Most Impactful Provisions #13 — Starter 401(k) Plans and Safe Harbor 403(b) Plans →

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The SECURE Act 2.0: The Most Impactful Provisions #12 — Multiple Employer 403(b) Plans


403(b), SECURE 2.0
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Key Takeaways

  • The SECURE Act 1.0 gave us Pooled Employer Plans, PEPs, for qualified plans.
  • SECURE Act 2.0—effective for plan years beginning after December 31, 2022—extends PEPs and MEPs to 403(b) plans.
  • While the legal effective date is already here, I haven’t yet seen any 403(b) MEPs or PEPs in the marketplace. So, the ”practical effective date” may be the 2024 plan year.

The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022.

SECURE Act 2.0 has over 90 provisions, some major and some minor; some mandatory and some optional; some retroactively effective and some that won’t be effective for years to come. One difference between the SECURE Act 2.0 and previous retirement plan laws is that many of 2.0’s provisions are optional…that is, plan sponsors are not required to adopt the provisions, but can adopt them if they decide that the change will help their plans and participants. This series discusses the provisions that are likely to be the most impactful, either as options or as required changes.

This article discusses the continuing extension of 401(k) concepts to 403(b) plans, specifically the SECURE Act 2.0 provisions for 403(b) PEPs and MEPs. This probably reflects the growing awareness of the higher costs in the 403(b) market, especially for smaller and midsized plans.

Continue reading The SECURE Act 2.0: The Most Impactful Provisions #12 — Multiple Employer 403(b) Plans →

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The SECURE Act 2.0: The Most Impactful Provisions #11 — The Saver’s Match for Low Income Workers


SECURE 2.0
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Key Takeaways

    • In the past, and for the next few years, the Internal Revenue Code provides for a nonrefundable tax credit for low-paid individuals who make plan, IRA or ABLE contributions. Unfortunately, that credit was seldom claimed on tax returns, possibly because of a lack of awareness among low-paid taxpayers.
    • However, under SECURE Act 2.0—beginning in 2027—the tax credit will become refundable, but not to the individuals. Instead, the Federal government will deposit matching contributions into the IRAs and plan accounts of those individuals.
    • The administrative complexity of depositing the Federal matches into those IRAs and plan accounts is significant. Nonetheless, it is an effort by Congress to help the lowest paid workers in the country–or at least to help those who make enough money to contribute into their IRAs and plans.
    • However, for workers who don’t earn enough to have disposable income to put into their IRAs or plans, this change doesn’t address their circumstances.

The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022.

SECURE Act 2.0 has over 90 provisions, some major and some minor; some mandatory and some optional; some retroactively effective and some that won’t be effective for years to come. One difference between the SECURE Act 2.0 and previous retirement plan laws is that many of 2.0’s provisions are optional…that is, plan sponsors are not required to adopt the provisions, but can adopt them if they decide that the change will help their plans and participants. This series discusses the provisions that are likely to be the most impactful, either as options or as required changes.

This article discusses the provision that is, in my opinion, the most unique in SECURE 2.0. It is one of the mandatory provisions, but it doesn’t become effective until 2027, probably because of the considerable changes needed to implement and administer the provision. Section 103 of SECURE 2.0 creates a “Saver’s Match” for low-income workers to be funded by the Federal government.

Continue reading The SECURE Act 2.0: The Most Impactful Provisions #11 — The Saver’s Match for Low Income Workers →

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