PLANSPONSOR - November/December 2024 - 38

FIDUCIARY FORUM
A Provision Review
Where does the company plan stand in terms of SECURE 2.0?
I
t seems like just yesterday that we were talking about the passage
of the Securing a Strong Retirement Act of 2022, in its
final version called the SECURE 2.0 Act, and often now just
SECURE 2.0. However, between the staggered effective dates and
postponement of some provisions, plan sponsors may have lost
track of which provisions were optional and which were required.
This is especially true because, while plan amendments for qualified
plans are not necessary until December 31, 2026, plan sponsors
may operationally adopt these provisions earlier. This can
give rise to inadvertent operational issues should the plan document
be inconsistent with the plan's operation.
Thus, we recommend that plan sponsors, when preparing for
2025, take a second look at SECURE 2.0 and see what provisions
might be appropriate to implement next year as well as review
which ones have already been operationally implemented.
The current year saw some important changes. As of 2024,
the required minimum distribution rules no longer applied to
Roth contributions held in a qualified plan. But the 2024 provision
that required catch-up contributions to be made as Roth
contributions for highly compensated employees was postponed
through 2025 (see IRS Notice 2023-62). This provision
was the most problematic, as service providers and plan sponsors
alike scrambled unsuccessfully to comply and ultimately
welcomed the delay.
This year also brought some optional provisions that plan
sponsors could implement. These included:
* The ability to match student loan payments with contributions
to the plan;
* An increase in the automatic cash-out limit from $5,000
to $7,000;
* Provision for emergency savings accounts funded by
employee contributions (treated as Roth), not to exceed $2,500
for a non-highly compensated worker;
* Allowance for personal expense withdrawals; and
* Allowance for distributions to survivors of domestic abuse.
Earlier Optional 2.0 Provisions
It's important to note that, prior to this year, there were additional
optional distribution provisions that plan sponsors could implement.
These were: qualified birth or adoption distributions and
recontribution options;
terminally ill distributions; emergency
expense distributions; domestic abuse distributions; and qualified
disaster recovery distributions and loans options.
38 PLANSPONSOR.COM November - December 2024 Art by Joseph Ciardiello
It is also key to note that the rules for a terminally ill distribution
did not in fact create a new distribution right; instead,
the rule allows a terminally ill participant, who may otherwise
take a distribution under the terms of the plan, to avoid the
early withdrawal penalty.
Further, due to the recent natural disasters that have
occurred, many plan sponsors have adopted the qualified disaster
and recovery distribution and loan options. This option allows
distributions of up to $22,000, which are not subject to the 10%
early withdrawal penalty and may be repaid within three years.
Additionally, loan limits are increased to $100,000, or 100%
of the participant's account, and repayment may be delayed for
one year. This is similar to the rules provided pursuant to the
Coronavirus Aid, Relief and Economic Security Act.
The Catch-Up Contribution Question
As we look to 2025, plan sponsors continue to have the choice to
adopt the optional provisions from previous years, as described
above. Furthermore, they may implement the increase in catchup
contributions for those participants age 60 through 63.
Specifically, the catch-up limit is increased to the greater of
$10,000 or 50% more than the regular catch-up limit in effect for
2024. Generally this is referred to as an optional provision, and
we have found that it will be automatically implemented for those
plan documents that define catch-up contributions pursuant to
Internal Revenue Code Section 414(v).
Yet, some within the industry take the position that this
provision is mandatory if the plan already allows for catch-up
contributions. Regardless, for those plan sponsors that do not
wish to implement the option or have concerns about its implementation,
we recommend deciding whether the plan document
should be amended to consider whether it is necessary to exclude
or include the provision.
In sum, this is the perfect time for plan sponsors to review,
both internally and externally, these considerations with their
service providers.
Heather Bader and Summer Conley are partners in the
Los Angeles office of Faegre Drinker Biddle & Reath LLP.
Both are in the firm's employee benefits and executive
compensation practice group, with Bader co-leading the
firm's financial services industry team and Conley serving
as the practice group leader.
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PLANSPONSOR - November/December 2024

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