The SECURE Act (Setting Every Community Up for Retirement Enhancement) passed in 2019, modified the requirements for employer-provided retirement plans, individual retirement accounts (IRAs), and other tax-favored savings accounts. On December 29, 2022, President Joe Biden signed the Consolidated Appropriations Act 2023 into law, which further amended retirement plan legislation with the SECURE 2.0 Act.

The goals of both bills were to promote retirement savings and offer flexibility to individuals while boosting tax savings and streamlining processes for employers. 

While some provisions of the retirement act went into effect immediately, some will be new this year. Therefore, both employees and employers should be aware of the following SECURE 2.0 provisions that go into effect in 2023.

What SECURE 2.0 provisions directly affect individuals:

• Increased age for required minimum distributions. Initially, the SECURE Act increased the age at which individuals must withdraw from a retirement plan to 72 (vs. 70½). SECURE 2.0 gradually raises the minimum age for withdrawal from 73 in 2023 to 75 in 2033. (Note: individuals who reach age 73 before 2023 are subject to the age 73 required distribution date.)
• Decreased penalty for failing to meet the minimum distribution age. The SECURE 2.0 Act reduces the penalty or excise tax from 50 percent to 25 percent if a required minimum distribution is, in fact, not withdrawn. Individuals can further reduce that penalty to 10 percent if they correct the failure within two years. 
• Self-certification for a hardship withdrawal. Before 2023, if a retirement plan participant wanted to take a hardship withdrawal from their 401(k) or 403(b) plan, they needed to provide evidence of the financial need. SECURE 2.0 allows for a hardship withdrawal based on an employee’s certification that (1) the hardship is justified and (2) the distribution amount does not exceed the financial need. This streamlines the process for both the employee and the employer/plan administrator.
• Reduced window to repay distributions taken for birth or adoption expenses. The 2020 SECURE Act allowed participants to withdraw money from the plan for certain birth or adoption expenses and the distributions would not incur the early withdrawal tax as long as they repaid the monies to the plan at any time. SECURE 2.0 restricts the repayment period to three years.

What employers should know that they now have: 

• The option to make Roth (after-tax) contributions. Employers may choose to allow participants in qualified 401(k) and 403(b) plans to elect matching or nonelective contributions to be made to a Roth account, which is taxable income. All matching/nonelective contributions made by the employer to a Roth plan are fully vested. 
• The ability to incent plan participation. SECURE 2.0 allows employers to offer a “de minimus” financial incentive to an employee to contribute to a 401(k) or 403(b) plan; however, there are caveats to this incentive. It must not be paid for with plan assets, the term “de minimus” is open to interpretation, and the reward could be considered taxable income.
• Permission to reduce communications to unenrolled plan participants. If there is an unenrolled plan participant who receives the summary plan description and other notices regarding plan eligibility yet does not enroll in the plan, they will be considered an “unenrolled participant.” Prior to SECURE 2.0, plans were required to send all eligible participants – enrolled or unenrolled – all plan communications. In the future, plans will only need to send an annual eligibility reminder. 

Additional provisions of SECURE Act 2020 and SECURE 2.0 come into effect in future years. 2024 will see expanded catch-up contribution ages and amounts, one penalty-free emergency withdrawal option, and employer flexibility in designing plans that allow for student loan repayment. In 2025, qualifying new plans will be subject to auto-enrollment, and part-time workers will be eligible for participation.

While the ultimate goals of the 2020 SECURE Act and SECURE 2.0 were to offer more accessibility and promote retirement savings, they also promised to simplify and streamline the design and administration of retirement plans. However, with nearly 100 provisions that go into effect over many years, SECURE 2.0 is still fairly complex. It requires a thorough understanding of all the provisions – those that are required, those that are optional, and those that apply to your specific situation. 

At Sassoon Cymrot Law, our skilled attorneys can help both individuals and employers determine their next steps concerning retirement plans to ensure your needs are met and in compliance with all regulations. Contact us today.