Insight SECURE 2.0 Update
By John C. Hughes,
It has been almost six months since “SECURE 2.0” was enacted as part of the Consolidated Appropriations Act, 2023. There has been no shortage of questions and commentary relative to its many provisions primarily affecting employer retirement plans; most notably, 401(k) plans (as well as 457(b) and 403(b) plans).
At this point, employers should be engaged with their recordkeepers, advisors, and qualified counsel to ensure they are taking appropriate steps to implement the required SECURE 2.0 provisions, and make decisions regarding the optional provisions. While additional guidance from the government is eagerly awaited, some has recently been issued.
First, not so much “guidance,” but an important development, Ranking Members of relevant Congressional Committees sent a letter to the Secretary of Treasury and Commissioner of Internal Revenue. The letter calls out four SECURE 2.0 sections that were drafted incorrectly and require legislative correction. Of particular note, there is a provision of SECURE 2.0 that requires employees who made $145,000 in the prior year to make catch-up contributions on a “Roth” basis beginning January 1, 2024. This provision has been interpreted to inadvertently eliminate the ability to make catch-up contributions altogether. It is welcomed news that this potential problem will hopefully be addressed soon.
More substantively, this new requirement for certain participants to make catch-up contributions on a Roth basis has probably received the most attention from employers given the fast approaching effective date, the wide-ranging impacts, and remaining confusion/questions. It has been reported that large recordkeepers have been meeting with the IRS to obtain answers to the questions, and have requested a delay of the effective date. Such a delay seems unlikely given that: (1) this provision was put in place in order to raise money to support other aspects of SECURE 2.0, and (2) the section at issue does not provide the IRS with the regulatory authority to extend the effective date (i.e., it seemingly would require an act of Congress). Stay tuned, but in the meantime, efforts toward achieving compliance and communicating with employees is advised.
Second, the IRS recently issued Notice 2023-43 addressing SECURE 2.0’s expansion of the IRS correction program known as the Employee Plans Compliance Resolution System (“EPCRS”). The Notice generally provides guidance relative to broadening the ability for plan sponsors to “self-correct” certain failures (as opposed to submitting a formal application to the IRS along with a fee). Without getting into too much detail, the new law expands the time frame during which employers may self-correct including self-correction by way of retroactive amendment (which in and of itself is a relatively new concept under EPCRS). This is a welcomed expansion and should make it easier to correct plan failures and protect plans’ tax favored status (and avoid additional monetary penalties). The notice enumerates conditions that must be satisfied in order to take advantage of the new law and extended time frame.
On a related note, as previously reported, the amendment deadline for SECURE 2.0 is a ways off, as is the amendment deadline for the “CARES Act” and the original “SECURE Act” (December 31, 2025 for most plans). Notwithstanding, amendments for the CARES Act should be put in place now because employers already made their decisions relative to their options under the CARES Act, and the operational aspects of those options are no longer in effect. Accordingly, those amendments should be put in place in order to put the issue to bed and before memories fade relative to the chosen options thereby impeding the ability appropriately put the amendment in place.
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