PLANSPONSOR - January - February 2024 - 6

RULES & REGULATIONS
SECURE 2.0 Fixes Get Drafted
E
arly this past December, members
of the House of Representatives and
the Senate issued a discussion draft
for the much-anticipated bill applying technical
corrections to the SECURE [Setting
Every Community Up for Retirement
Enhancement] 2.0 Act of 2022. The bill
would correct several mistakes made in the
hallmark retirement law.
First and foremost, it corrects the
act's most egregious error: removing
catch-up contributions, starting this year.
The drafters of SECURE 2.0 originally
intended to create a higher catch-up limit
for those aged 60 to 63, sometimes called
" super-catch-ups, " and in the rush to pass
a budget that December, they made this
now-infamous error. The corrections bill
would make the original intent effective
without removing the general provision.
In light of its original intent, the IRS
had announced last August it will permit
catch-up contributions to be made into
2024, even though SECURE 2.0 technically
removes the concept from the tax
code. This meant catch-ups would be
6 PLANSPONSOR.COM January - February 2024
safe and not dependent on the bill being
passed by the end of last year.
The IRS announced in the same
guidance that it would extend to January
1, 2026, from this January 1, the effective
date for employees making $145,000
or more to make catch-up contributions
on a Roth, or after-tax, basis. The corrections
bill does not speak to this issue,
presumably because the IRS has already
addressed it through guidance.
The corrections bill would
also
explicitly tie the maximum contribution
amount for starter 401(k) plans to the
annual maximum for individual retirement
accounts. SECURE 2.0 previously set
the maximum for starter plans at $6,000
indexed, which was the IRA limit in 2022,
but that provision was not set to take effect
until this year, when the IRA limit is set to
become $7,000, making the starter limit
both less than and divorced from the IRA
limit. The correction effectively says the
starter and IRA limits will match.
Additionally, the provision in
SECURE 2.0 changing required mandaArt
by OYOW
tory distributions would also be corrected
to reflect the drafters' intent, which was to
increase the age to 73 starting last January
1, and age 75 starting January 1, 2033.
Further, the legislation would change
the effective date for the 15% ceiling on
automatic escalation found in Section
101 of SECURE 2.0. Plans started since
SECURE 2.0's passage must adopt automatic
enrollment at 3% to 10%, then escalate
by 1% to a maximum of 10% through
15%, unless the participant opts out. The
corrections bill would move the date for
the 15% ceiling on escalation to January 1,
2026, instead of 2025, leaving the ceiling
at 10% in the meantime.
Other provisions in SECURE 2.0
received minor clerical corrections,
including the saver's match and plan lost
and found. Assuming the corrections bill
is attached to a budget bill, it will have
two opportunities to pass, given the staggered
nature of the expirations of the
November continuing resolutions that
extended federal spending to January 19
and February 2. -Paul Mulholland
http://www.PLANSPONSOR.COM
PLANSPONSOR - January - February 2024

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