Know these 2024 SECURE 2.0 updates for employer-sponsored plans
November 15, 2023
SECURE 2.0 made a lot of waves among plan sponsors and financial professionals when President Biden signed it into law in late 2022.1 Some administrators were scrambling to implement key changes that essentially went into effect immediately.
Examples of changes that took effect in 2023 included a required minimum distribution (RMD) age increase to age 73, allowing plan participants an additional year to defer receiving RMDs. There also were additional employer matching options, exceptions for terminally ill participants to not pay the additional 10% penalty for early distributions, and the ability for 403(b) plans to participate in Multiple Employer Plans (MEPs) and Pooled Employer Plans (PEPs).2
Portions of SECURE 2.0, however, were intended to be implemented in phases. So, what changes will 2024 bring?
Changes in effect for 2024
The following original SECURE Act 2.0 changes will be implemented in 2024. Ensure your plan is in compliance.
RMD elimination (Section 325)
Previously, required minimum distributions (RMDs) on a Roth 401(k) were required prior to the death of the owner. Beginning in 2024, Roth 401(k) accounts in employer retirement plans will no longer be subject to RMD requirements.2
Expanded eligibility for part-time employees (Section 125)
The original SECURE Act requires employers to allow long-term, part-time workers to participate in the employers’ 401(k) plans beginning in 2024. As it was originally stated, part-time employees must complete either one year of service (with the 1,000-hour rule) or three consecutive years of service (where the employee completes at least 500 hours of service). Section 125 of SECURE Act 2.0 reduces the three-year rule to just two years, effective for plan years beginning after December 31, 2024.2
Surviving spouse can be treated as employee (Section 327)
For the purposes of an RMD, a surviving spouse can elect the same treatment as their deceased spouse who was an employee.2 For example, a surviving spouse could defer RMDs until the deceased spouse would have reached RMD age. Based on the surviving spouse’s age, there may be other options available.
Optional Provisions
Student loan debt “matches” (Section 110)
Starting in 2024, employers will be able to "match" qualified employee student loan payments with matching payments to a retirement account, helping ease the burden of student debt.2
Permissible emergency expense withdrawals (Section 115)
Plan participants may withdraw up to $1,000 per year to help cover expenses for a personal or family emergency and not have to pay the 10% early distribution penalty. No further emergency distributions are permissible during the 3-year repayment period unless full repayment occurs. Other limitations may apply, so individuals and plan sponsors should seek additional guidance prior to any withdrawals to help ensure compliance.2
Increased limits for mandatory cashouts (Section 304)
As it stands now, if a former employee’s retirement account does not exceed $5,000, the employer can distribute and roll over their account into an IRA without the participant’s consent. Beginning in 2024, plans that currently have a $5000 threshold will automatically be increased to $7000. The increase does not apply if the plan uses $1000 or less for a threshold.2
Beyond 2024: SECURE 2.0 changes on the horizon
After-tax catch-up contribution requirements (Section 603)
As it was originally drafted, employees earning more than $145,000 in plans permitting Roth would have been required to make all catch-up contributions to their qualified retirement plans on a Roth basis beginning January 1, 2024.2 In late summer, however, the IRS issued Notice 2023-62, announcing an administrative transition period that extends the compliance deadline until 2026, bringing a sigh of relief to many.3 Plan sponsors still need to ensure they are working toward compliance with the new rule and not wait until the last minute.
The Treasury Department and the IRS plan to issue future guidance, so there may be additional provisions or extensions on the horizon.
Required automatic enrollments (Section 101)
Effective for plans established on or after December 29, 2022, employers who offer 401(k) or 403(b) plans will be required to automatically enroll participants once they become eligible, leaving the onus on employees on whether to opt-out. The provision goes into effect beginning in 2025. The initial automatic enrollment is a minimum of 3% but cannot exceed 10%. The amount increases by 1% each year afterward until it reaches at least 10%, but not more than 15%. Current 401(k) and 403(b) plans are grandfathered in. There are exceptions for small businesses with 10 or fewer employees, new businesses less than three years old, church plans, and governmental plans.2
New age tier for catch-up limits (Section 109)
Beginning in 2025, catch-up contributions for those ages 60–63 increase to $10,000 or 50% more than the regular catch-up amount, whichever is greater.2
There are many other provisions, of course, but these are a good place to start. Please contact our team if you would like to talk through other implications as this legislation gets implemented.
Sources
1 Whitehouse.gov, Bill Signed: H.R. 2617, December 29, 2022
2 Federal.Senate.gov, SECURE 2.0 Act of 2022, 2022
3 IRS.gov, IRS announces administrative transition period for new Roth catch up requirement; catch-up contributions still permitted after 2023, August 25, 2023
