The Consolidated Appropriations Act, 2023 (CAA 2023), signed into law on December 29, 2022, includes the long debated and expected changes to employer-sponsored benefit programs known as SECURE 2.0.
There are over 90 provisions addressed in the new law, and this article is one in a series by Milliman that looks for any harmonizing theme among the provisions.
Other articles in this series examine some of the more significant changes to the law impacting the ability of Americans to save and access their retirement. This article focuses on provisions that clarify changes included in earlier laws and provisions, as well as a broader pathway to bringing errant plans back into compliance under the IRS Employee Plans Compliance Resolution System (EPCRS).
There are 13 sections of SECURE 2.0 that are specifically included to clean up Internal Revenue Service (IRS) and U.S. Department of Labor (DOL) plan compliance inconsistencies, omissions, or scrivener’s errors in prior laws and regulations or to allow plan sponsors to more easily self-correct violations. This article will provide a brief overview of the sections of SECURE 2.0 related to complying with the law or correcting plans to bring them back into compliance.
Effective retroactive to December 29, 2022
- Section 331 includes special rules for use of retirement funds in connection with qualified federally declared disasters occurring on or after January 26, 2021.
- Section 401 includes clarifying language relating to provisions in the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 (likely to be known as SECURE 1.0 going forward). The clarifying language has the same the effective date of the corresponding provision as defined in SECURE 1.0.
Effective on December 29, 2022
- Section 301 addresses recovery of overpayments of retirement benefits. Plan sponsors now have some latitude in deciding whether to recoup the inadvertent overpayments from participants or beneficiaries.
- Section 305 expands EPCRS to allow more types of errors to be corrected internally through self-correction and to exempt certain failures to make required minimum distributions (RMDs) from the excise tax. The provision may limit future filings through the IRS Voluntary Correction Program (VCP) going forward.
- Section 341 allows for the consolidation of defined contribution (DC) plan notices. The U.S. Treasury and the U.S. Department of Labor (DOL) are directed to amend regulations within two years to permit consolidation of certain required notices.
Effective in 2023
- Section 320 eliminates the requirement to provide certain unnecessary plan notices to participants who have not elected to participate in the plan. However, to encourage these participants to participate, the plan is required to send an annual reminder notice.
Effective in 2024
- Section 310 allows plan sponsors to exclude certain participants who have not met minimum age and service conditions from the top-heavy test. Lawmakers hope this will encourage employers to allow employees to begin deferring earlier than statutorily required.
- Section 325 removes the requirement to pay required minimum distributions (RMD) from the Roth portion of a qualified retirement plan. Currently, RMDs are not required from Roth IRA accounts, and this will conform requirements.
- Section 327 allows the surviving spouse beneficiary to elect to be treated as the deceased employee for purposes of calculating and payment of RMDs.
- Section 350 indefinitely extends the safe harbor correction of missed employee elective deferrals for retirement plans with automatic enrollment and automatic escalation features.
- Section 343 aims to identify defined benefit (DB) plan funding issues more clearly on a plan’s annual funding notice.
Effective in 2026
- Section 338 goes retro and requires defined contribution (DC) plans to provide paper statements at least once annually to plan participants unless they otherwise elect. The DOL has been tasked with updating relevant sections of their regulations and guidance by December 31, 2025.
- Section 501 declares plan amendments made pursuant to SECURE 2.0 as well as the SECURE and the Coronavirus Aid, Relief, and Economic Security (CARES) Act generally to be effective for the first plan year beginning on or after January 1, 2025 (2027 for governmental plans).
It is unclear when formal guidance will be released, and perhaps the IRS and DOL will not enforce any penalties on early adoption and instead will permit any technical changes to be made after formal guidance is released. We can assume there will be “good faith compliance” in that vacuum of formal guidance.
As this article is being published, plan sponsors (acting as plan fiduciary) and plan services providers alike are eagerly anticipating formal guidance from the IRS and DOL to implement these SECURE 2.0 changes
Employers, their advisors, and plan administrators will need to consider actions for their plans. For those provisions that are implemented, additional consideration should be made to account for any required changes to administrative systems and communications to plan participants before the effective date of the change.
Please contact your Milliman consultant for additional information that affects your employer benefit programs.