On December 29, 2022, President Biden signed the Consolidated Appropriations Act, 2023, which is wrapped into a larger bill, Securing a Strong Retirement Act, commonly called SECURE 2.0. This package of laws follows the Setting Every Community Up for Retirement Enhancement (SECURE) Act signed into law at the end of 2019. SECURE 2.0 covers numerous changes to retirement provisions designed to increase retirement savings, facilitate access to retirement savings, encourage employees to save for retirement, and lower employers’ cost of offering and funding retirement savings plans. The majority of the SECURE 2.0 provisions will become effective in 2024.
Some of the more than one hundred provisions in the SECURE 2.0 Act of 2022 that could impact your retirement savings in the coming year(s) are briefly highlighted in the following summary:
- Requiring most employers to automatically enroll employees in their retirement plan at a rate of at least 3%, but no more than 10%. After the first year, the default automatic enrollment rate increases by 1% annually, to at least 10%, but no more than 15%. Employees can opt out of these provisions if they choose. These changes go into effect for plan years beginning after December 31, 2024.
- Increasing the age required minimum distributions (RMDs) from age 72 to 73 in 2023 and then to age 75 by 2033.
- Establishing an enhanced catch-up contribution for people between ages 60 and 63. Under previous law, retirement plan participants over 50 could contribute an additional $6,500 per year in 2022 (increasing to $7,500 in 2023). Under the new legislation, employees between 60 and 63 can make a catch-up contribution equal to the greater of $10,000 or 150% of the standard catch-up contribution starting in 2025. These amounts are subject to inflation adjustments annually, similar to other contribution limits.
- Connected to the catch-up contributions changes noted above, employees who earn $145,000 or more (indexed for inflation) will be required to source their catch-up contributions as Roth contributions, as opposed to pre-tax, starting in 2024.
- Allowing employers to add a provision to their plan document to make matching contributions on behalf of their employees making student loan repayments, instead of matching retirement plan contributions. These changes go into effect for plan years beginning after December 31, 2023.
- Providing an option for employees to elect employer matching or nonelective contributions to be Roth contributions, provided such employer contributions are nonforfeitable.
- Requiring plan sponsors who employ part-time employees who annually work between 500 and 999 hours to become eligible to participate in the company’s retirement plan after no more than two consecutive years. The current waiting period is three years. These changes go into effect for plan years beginning after December 31, 2024.
- Allowing penalty-free access to retirement accounts for qualifying emergencies, up to $1,000 annually, starting in 2024. Participants taking such distributions are allowed to repay these amounts within three years from the date of the distribution.
Other new changes include increasing incentives and credits for small business to offer retirement plans, allowing 403(b) plan sponsors to join multiple employer plans, enhancing the saver’s credit, reducing excise tax penalties for failing to take RMDs, and establishing penalty-free withdrawals for victims of domestic abuse.
The above information highlights some, but not all, of the new provisions in SECURE 2.0 that will take effect in 2023 and 2024. Other provisions in the law will apply in later years. For further guidance on this new law and to address your specific questions for employer plans, please contact us at info@calibrecpa.com or call 866.464.2839.
Article Prepared By:
Lila Leno, CPA, MBA | Partner
