Category Archives: SECURE Act

The SECURE Act 2.0: The Most Impactful Provisions (#4–Optional Treatment of Employer Contributions as Roth Contributions)

Key Takeaways

  • The SECURE Act 2.0 permits plan sponsors to give participants the option of receiving employer contributions on a Roth basis.
  • This provision is effective on the date of enactment, December 29, 2022.
  • However, the option may not be as attractive as it first appears, since the matching and nonelective contributions must be fully vested when made.

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 acts is that so many of 2.0’s provisions are optional…that is, plan sponsors are not required to adopt the provisions, but can if they conclude that the change will help the plan and the participants. This series discusses the provisions that are likely to be the most impactful, either as options or as required changes.

This article discusses one of the optional provisions—the ability of plan sponsors to permit participants to elect to receive matching and nonelective employer contributions on a Roth basis, meaning that the contributions would be taxed through to the participant when made, but that the contributed amounts would ultimately be distributed tax free and, if the Roth conditions are satisfied, the earnings would also be tax free. This provision was effective on the date on enactment of SECURE Act 2.0—December 29, 2022.

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The SECURE Act 2.0: The Most Impactful Provisions (#3–Extension of RMD Start Ages)

Key Takeaways

  • The SECURE Act 1.0 delayed the starting age for RMDs from 70½ to 72.
  • SECURE Act 2.0 further delays the ages to 73 and 75.
  • As a practical matter, while most plan participants and IRA owners will need to access their retirement savings before those ages, the change creates an opportunity for higher compensated and wealthy individuals to delay the tax consequences of mandatory distributions from plans and IRAs.

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 won’t be effective for years to come. This series of blog articles discusses the provisions that are likely to be the most impactful.

The first article was about Automatic Plans, a mandatory provision. The second article was about Matching Student Loan Payments, an optional provision.

This article discusses the extension of the starting age for Required Mandatory Distributions (RMDs). The SECURE Act 1.0 delayed the starting age from 70½ to 72. SECURE Act 2.0 further delays those dates. As a result of the changes in those two statutes, the ages for starting RMDs are:  72 in 2022; 73 in  2023; and 75 in 2033.

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The SECURE Act 2.0: The Most Impactful Provisions (#2–Student Loan Matches)

Key Takeaways

  • Some provisions in SECURE Act 2.0 are optional, where plan sponsors can adopt the provision in their discretion. Many of those provisions are opportunities to make plans more attractive or beneficial to employees.
  • One such optional provision is the ability to match student loan repayments, which should be attractive to employers who hire college graduates.
  • The provision is effective for plan years after December 31, 2023.

The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022—the “enactment date”.

SECURE Act 2.0 has over 90 provisions, some major and some minor; some are mandatory and some are optional; and some are retroactively effective and some won’t be effective for years to come. This series of articles will discuss the provisions that are likely to be the most impactful.

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The SECURE Act 2.0: The Most Impactful Provisions (#1–Automatic Plans)

Key Takeaways

  • “New” 401(k) and 403(b) plans must be automatically enrolled, with automatic deferral increases, no later than the plan year beginning after December 31, 2024 (e.g., 2025 for calendar year plans).
  • Any plan “established” on or after December 29, 2022 is considered a new plan.
  • Defaulting participants must be invested in a QDIA.
  • There are exceptions for government plans, church plans, SIMPLE 401(k) plans, employers with 10 or fewer employees, and employers during their first 3 years of existence.

The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022—the “enactment date”.

SECURE Act 2.0 has over 90 provisions, some major and some minor. One of the most impactful provisions is the new requirement to automatically enroll and automatically increase deferrals to new 401(k) and 403(b) plans.

New 401(k)s and 403(b)s must be automatically enrolled and the deferrals automatically increased, beginning for plan years after December 31, 2024. At that time, 401(k) and 403(b) plans will be required to automatically enroll eligible employees at 3% (but not more than 10%) and thereafter automatically increase the deferral rates by 1% per year up to at least 10% (and if desired by the employer, up to a maximum of 15%). Defaulting participants must be invested in a QDIA (qualified default investment alternative).

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SECURE Act and Guaranteed Income (Part 3)

The introduction to my last two posts, SECURE Act Part 1 and SECURE Act Part 2, explained:

There are two parts of the SECURE Act that I believe will have the greatest impact on my clients: plan sponsors and plan service providers. The first includes the provisions on retirement income, including the safe harbor for selecting a guaranteed income provider, the ability to distribute guaranteed income investments if a plan no longer want to offer those products, and a new requirement to give participants projection of their retirement income. The second impactful part is the authorization of Open MEPs (Multiple Employer Plans), which the law calls “PEPs” (or Pooled Employer Plans). That change will allow financial institutions to sponsor plans that can be adopted by multiple (or even many) unrelated employers, transferring much of the fiduciary responsibility onto the financial institution.

Part 1 discussed the fiduciary safe harbor for selecting an insurance company to provide the guaranteed retirement income products for defined contribution plans (e.g., 401(k) plans). Part 2 covered the common guaranteed products in 401(k) plans under the pre-SECURE Act rules.

This article talks about two practical issues: (1) the need for the guaranteed retirement income products to be on recordkeeping platforms, and (2) the role of plan advisors in helping 401(k) fiduciaries understand and select the insurance company and the product.

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SECURE Act and Guaranteed Income (Part 2)

The introduction to my last post, SECURE Act Part 1, explained:

There are two parts of the SECURE Act that I believe will have the greatest impact on my clients: plan sponsors and plan service providers. The first includes the provisions on retirement income, including the safe harbor for selecting a guaranteed income provider, the ability to distribute guaranteed income investments if a plan no longer want to offer those products, and a new requirement to give participants projection of their retirement income. The second impactful part is the authorization of Open MEPs (Multiple Employer Plans), which the law calls “PEPs” (or Pooled Employer Plans). That change will allow financial institutions to sponsor plans that can be adopted by multiple (or even many) unrelated employers, transferring much of the fiduciary responsibility onto the financial institution.

That post then discussed the fiduciary safe harbor for selecting an insurance company to provide the guaranteed retirement income products for defined contribution plans (e.g., 401(k) plans).

This article talks about the types of guaranteed retirement income products currently found in 401(k) plans. Let me start by addressing two common areas of misunderstanding.

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SECURE Act and Guaranteed Income (Part 1)

There are two parts of the SECURE Act that I believe will have the greatest impact on plan sponsors and service providers.

  • The first part includes the provisions on retirement income, including the safe harbor for selecting a guaranteed income provider, the ability to distribute guaranteed income investments if a plan no longer want to offer those products, and a new requirement to give participants projection of their retirement income.
  • The second impactful part is the authorization of Open MEPs (Multiple Employer Plans), which the law calls “PEPs” (or Pooled Employer Plans). That change will allow plans that can be adopted by multiple unrelated employers, transferring much of the fiduciary responsibility onto the sponsor of the PEP, which could be, g., a financial institution, a recordkeeper or an advisory firm.

This article discusses the fiduciary safe harbor for selecting the provider (e.g., insurance company) for a guaranteed retirement income product. The other provisions will be discussed in future articles.

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