The Consolidated Appropriations Act of 2023, which contained Secure 2.0 Act of 2022 (Securing a Strong Retirement Act), was signed into law on December 29, 2022. The overall goal was to increase retirement savings, improve retirement rules and also lower some of the costs associated with implementing retirement plans. The bill provides for significant changes to retirement plans, a few of the more significant changes are provided here.
Required Minimum Distributions (RMDs)
The requirement to begin taking RMDs will increase from age 72 to age 73 in 2023, and then to age 75 in 2033. In addition, the penalty for not taking a RMD is reduced from 50 percent of the amount required to be withdrawn currently to 25 percent, and to 10 percent if corrected within two years.
Retirement Savings "Lost and Found” provision
Finding lost participants has been a challenge for all plan sponsors. The act will require an online searchable database to be created within two years from the signing of the bill. The database will allow for a participant or beneficiary to search for benefits that they have lost track of. In 2025, plan sponsors will be required to share information with the Department of Labor to be included in the database.
Catch up contribution limits for 401(k) Plans
Starting January 1, 2025, individuals ages 60 through 63 years old will be able to make catch-up contributions up to $10,000 annually to a workplace plan, and that amount will be indexed to inflation.
Keep in mind, If you earn more than $145,000 in the prior calendar year, all catch-up contributions at age 50 or older will need to be made to a Roth account in after-tax dollars. The wage threshold will be adjusted annually for inflation beginning in 2025
401(k) matching contributions based on student loan payments
Effective for plan years beginning after December 31, 2023, the Act would allow employers to match employee student loan payments with matching payments to a retirement account, giving workers an incentive to save while paying off educational loans.
Auto enrollment and auto escalation plan provisions
The Act requires certain new 401(k) and 403(b) plans to include an automatic enrollment feature with a default rate between 3% and 10% of compensation and an automatic escalation feature of 1% per year up to a maximum between 10% and 20%. This requirement is effective for plan years after December 31, 2024.
The above are just a few of the many provisions that were introduced with the new bill. For additional information as to how this can impact your retirement plan and more details, please contact your Meaden & Moore representative.