How SECURE 2.0 affects employers
The SECURE 2.0 Act is brimming with tax incentives expected to reshape the retirement benefits landscape for years to come. Designed to encourage workers to beef up their retirement savings, the changes affect a variety of plans, and many changes are already in effect. The implications for employers managing benefit plans are significant.
Here’s an overview of some provisions — both mandatory and optional — and what the changes may mean for your organization. In many key areas, the government still needs to provide guidance on reporting and documentation requirements.
This mandatory provision was effective January 1, 2023:
- Required minimum distributions (RMD): The RMD age increased to 73. If a terminated participant or >5% owner turns 73 in 2023, their first RMD is due by April 1, 2024. The RMD age is further increased to 75 starting January 1, 2033. These optional provisions were effective January 1, 2023.
- Hardship distribution self-certification: If your plan allows hardship distributions, the plan can permit participants to self-certify that their hardship distribution is the result of a deemed immediate and heavy financial need, the distribution does not exceed the amount of need and the participant does not have other resources available. Documentation (e.g., a medical bill) is no longer required to be provided with the hardship distribution request. Check with your retirement plan provider to see if they have implemented the self-certification process and updated their forms accordingly.
- Roth employer contributions: Fully vested employer contributions (match and/or profit sharing) can now be Roth. Plan participants must make a written/electronic election. This will require accounting for a separate money type in the plan.
- Terminal illness distribution: If an employee has a terminal illness, they may be able to access their retirement account subject to two criteria: 1) a doctor has certified the employee has a terminal illness and 2) the illness is reasonably expected to result in death within seven years. If the employee is under age 59 ½, the 10% early distribution penalty will not apply. As of July 2023, guidance is needed for documentation and 1099-R reporting. If an employee has a need for a terminal illness distribution, check with your retirement plan provider to see if they are able to implement this provision.
Keep in mind that as of July 2023, the IRS has not provided guidance on the reporting for these contributions (i.e., W-2 or 1099-R), and recordkeeping systems are not equipped to handle this yet. If participants express interest in having their employer contribution be Roth, your plan may already be capable of facilitating this via an in-plan Roth conversion/transfer (if the plan allows).
This mandatory provision will be effective January 1, 2024:
- Some age 50+ catch-up deferrals must be Roth: Participants whose 2023 calendar year FICA wages exceed $145,000 will be required to have catch-up contributions classified as Roth in 2024. This $145,000 FICA wage will be indexed annually by the IRS. Impacted participants need to be notified of this requirement at the end of this year and payroll deductions will need to be adjusted accordingly.
This optional provision will be effective January 1, 2024
- Increase in mandatory distribution threshold: Plans with a mandatory distribution threshold of $5,000 will be permitted to increase the threshold to $7,000.
How Wipfli can help
Your retirement plan provider should be reaching out about these new provisions. If you need more information, Wipfli’s retirement plan consultants can provide insights and guidance as you implement changes to your benefits plans. Learn more about how we can provide support to your organization as you work to maintain competitive employee benefits.
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