SECURE Act 2.0 Summary

Roth matching and non-elective employer contributions

• Under prior law, employees could only make Roth deferrals to the plan. Employer matching and non-elective contributions (sometimes generically referred to as profit sharing contributions) were required to be pre-tax.
• Beginning January 1, 2023, employees in a qualified plan, 403(b) plan or governmental 457(b) plan can choose to treat matching and non-elective contributions as Roth contributions.
  • The provision is optional. Employers determine whether to allow Roth matching or non-elective contributions in the plan.
  • Only employees fully vested in employer contributions can elect Roth employer contributions.
  • Roth employer contributions are taxable income to the employee when made, are not subject to withholding, and are reported on Form 1099-R similar to an in-plan Roth rollover.

New tax credit for small employers providing benefits to military spouses

• • Employers with no more than 100 employees may receive a tax credit equal to $200 per each military spouse employee in the plan and an additional credit of $300 for related employer contributions.

Changes to required minimum distribution (“RMD”) rules

• Raises age to 73 for people who turn 72 after 12/31/22 and 73 before 1/1/2033.
• Raises age to 75 for people who turn 74 after 12/31/32.
• Reduces excise tax for failure to take RMD from 50% to 25%, which can be further reduced to 10%.
• Allows certain special needs trusts to be treated as designated beneficiaries.

Optional de minimis financial incentives for plan participation

• Permits small incentives ($250 or less) to be given to employees to start deferring to a 401(k) or 403(b) plan so long as the incentive is not paid from plan assets.

Hardship distribution rules

• IRS guidance previously permitted participants to self-certify that they qualified for a hardship distribution in certain circumstances. The new law confirms that plans may use this approach.
• Also conforms 403(b) plan hardship rules to 401(k) plan rules effective in 2024.

Eliminating the need to provide certain notices to unenrolled employees

• Permits employers to use a single annual “reminder notice” to eligible employees who do not enroll in the plan if certain conditions are met. This new notice replaces other annual notices the employer otherwise would have to deliver.

Expansion of permitted 403(b) plan investments to collective trusts

• Permits 403(b) plans to invest in certain collective investment trusts.

Governmental 457(b) plan deferral rule change

• Participants can change deferral rate any time before compensation made available and do not have to do so before first of the month.

New exception to 10% early withdrawal penalty for participants with terminal illness

• Must otherwise be eligible for a plan distribution.
• Requires physician certification.

New benefit options for participants affected by certain qualified natural disasters

• Permits distributions to participants impacted by a Presidentially declared disaster.
• Distributions may be repaid.
• Plans may allow increased loan amounts (to $100,000) and relax repayment terms for participants affected by disaster.

Recognition of Tribal Authority domestic relations orders

• Makes a domestic relations order of a Tribal Court eligible to be considered a QDRO.

Long-term, part-time employees (2024/2025)

• The original SECURE Act required employers to offer “long-term, part-time” (LTPT) employees the deferral option in the plan beginning January 1, 2024. A LTPT employee is defined as an employee who has attained age 21 and worked at least 500 hours for three consecutive 12-month periods following the date of hire. Employers must count service beginning January 1, 2021. The employer is not required to provide a match or other employer contribution to the LTPT employees. Special vesting rules apply.
• Beginning January 1, 2025, SECURE Act 2.0 reduces the service requirement from three to two years. Employers must count service for this purpose beginning as of January 1, 2023. In addition, these rules are now extended to 403(b) plans subject to ERISA.

Matching contributions on qualified student loan payments (2024)

• Permits plans to treat qualified student loan payments as elective deferrals for purposes of determining matching contributions.

New withdrawal options for participants with emergency expenses or affected by domestic violence (2024)

• Permits plans to allow for distributions to participants with certain emergency expenses or affected by domestic violence.
• Distributions are exempt from 10% early withdrawal penalty.

Permitting emergency savings accounts within the plan (2024)

• Permits plans to introduce a pension-linked emergency savings account, or PLESA, feature inside the plan.
• PLESAs subject to rules on contribution limits, withdrawals and annual notices.

Increasing dollar limit for mandatory cash-outs (2024)

• Increases limit for mandatory cash-outs from $5,000 to $7,000.

Safe harbor process to correct deferral failures (2024)

• Creates statutory provision to correct certain deferral failures without having to pay qualified non-elective contribution.

Roth catch-up contributions for participants with wages over $145,000 (2024)

• If plans want to continue to catch-up contributions, all catch-up contributions for participants over wage limit must be made on Roth basis and all other participants must be permitted to make Roth catch-up contributions.
• In late 2023, the IRS announced a two-year administrative transition period, delaying effective date of the rule until 2026.

Higher catch-up limits (2025)

• Increases catch-up contribution limit for participants ages 60-63.

New withdrawal option for qualified long-term care distributions (2026)

• Permits plans to allow for distributions for payment of certain long-term care expenses.

Requirement to provide one paper statement per year (2026)

• Creates requirement that certain participants be sent one paper statement per year unless they consent to receiving all disclosures electronically.