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IRS Releases Comprehensive Guidance on Various SECURE 2.0 Act Provisions
On Dec. 20, 2023, the IRS issued Notice 2024-2, providing guidance in the form of questions and answers with respect to various provisions of the legislation known as the “SECURE 2.0” Act.
SECURE 2.0, short for Setting Every Community Up for Retirement Enhancement 2.0, is a significant piece of legislation that promises to reshape the landscape of retirement savings and financial security in the United States. Building upon the foundation laid by the original SECURE Act, which was signed into law in 2019, this new version aims to address the evolving needs of retirees and workers while encouraging greater retirement savings and financial literacy.
Background
The Consolidated Appropriations Act of 2023 was signed on Dec. 29, 2022, which is an omnibus bill that includes the SECURE 2.0 legislation, referred to as such because it builds on the Setting Every Community Up for Retirement Enhancement SECURE Act of 2019. The legislation is intended to increase employees’ retirement savings and makes numerous important changes that employers should be aware of. Read a section-by-section summary of the legislation.
Key Provisions of SECURE 2.0
Increased Age for Required Minimum Distributions (RMDs)
One of the headline changes in SECURE 2.0 is the increase in the age at which individuals are required to start taking RMDs from their retirement accounts. Under the original SECURE Act, the age was set at 72, but the new version proposes to raise it to 75. This adjustment recognizes that people are living and working longer, providing them with more flexibility in managing their retirement savings.
Auto-Enrollment in Retirement Plans
Building on the success of the original SECURE Act in promoting auto-enrollment in 401(k) plans, SECURE 2.0 seeks to expand this practice to even more employers. It encourages small businesses to offer retirement plans and simplifies the process of setting up multiple employer plans (MEPs), making it easier for employees to participate in retirement savings programs.
Boosting Catch-Up Contributions
The legislation proposes increasing catch-up contributions for those aged 60 and older. This would allow older workers to save more aggressively for their retirement years, recognizing that they may have limited time left to build their nest eggs.
Incentives for Long-Term Care Insurance
SECURE 2.0 includes provisions to encourage Americans to plan for potential long-term care expenses. It provides tax incentives for purchasing qualified long-term care insurance policies, addressing a critical gap in many retirement plans.
Expanded Access to Annuities
The legislation aims to make annuities more accessible within retirement plans. Annuities can provide retirees with a reliable stream of income, reducing the risk of running out of money in retirement.
Enhanced Access to Multiple Employer Plans (MEPs)
Due to administrative and cost burdens, small businesses often struggle to offer retirement plans. SECURE 2.0 simplifies the rules governing MEPs, allowing multiple small businesses to join together and offer retirement plans collectively, which can reduce costs and increase access for employees.
Financial Literacy Initiatives
Recognizing the importance of financial education, SECURE 2.0 allocates resources to promote financial literacy programs. These initiatives will help individuals make informed decisions about their retirement planning and investment choices.
SECURE 2.0 Plan Amendments
Under Section 501 of SECURE 2.0, the plan amendment deadline for SECURE Act and SECURE 2.0 Act provisions is the last day of the first plan year beginning or after Jan. 1, 2025 (or Jan. 1, 2027, in the case of certain collectively bargained or governmental plans). The new guidance extends the plan amendment deadlines under Section 501.
New Plan Amendment Deadlines
IRS Notice 2024-2 extends the deadlines to make plan amendments to reflect the applicable provisions of the SECURE Act and SECURE 2.0 Act, as follows:
Dec. 31, 2026
The deadline to amend a qualified retirement plan that is not a governmental plan or an applicable collectively bargained plan.
Dec. 31, 2028
The deadline to amend an applicable collectively bargained plan.
Dec. 31, 2029
The deadline for a governmental plan within the meaning of Internal Revenue Code Section 414(d).
Section Summary
In addition to extending plan amendment deadlines under Section 501, Notice 2024-2 addresses issues under the following sections of the SECURE 2.0 Act:
- Section 101 (expanding automatic enrollment in retirement plans);
- Section 102 (modification of credit for small employer pension plan startup costs);
- Section 112 (military spouse retirement plan eligibility credit for small employers);
- Section 113 (small immediate financial incentives for contributing to a plan);
- Section 117 (contribution limit for SIMPLE plans);
- Section 326 (exception to the additional tax on early distributions from qualified plans for individuals with a terminal illness);
- Section 332 (employers allowed to replace SIMPLE retirement accounts with safe harbor 401(k) plans during a year);
- Section 348 (cash balance);
- Section 350 (safe harbor for correction of employee elective deferral failures);
- Section 601 (SIMPLE and SEP Roth IRAs); and
- Section 604 (optional treatment of employer contributions or non-elective contributions as Roth contributions).
The Treasury Department and the IRS invite comments and suggestions on the guidance, which should be submitted on or before Feb. 20, 2024.
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