On Thursday, December 29, 2022, the President signed The Consolidated Appropriations Act of 2023. The law includes a broad range of provisions relating to retirement plans and generally provides for expanded flexibility in qualified retirement plan savings.

These provisions, called the SECURE 2.0 Act of 2022:

• Raise the starting age for required minimum distributions to 73 beginning in 2023
• Eliminate the automatic indexing of the PBGC’s variable rate premium
• Raise the mandatory distribution threshold from $5,000 to $7,000
• Encourage enrollment in retirement plans through increased tax credits for low-income savers and higher catch-up contribution thresholds for those age 60 or older
• Require auto enrollment and auto escalation features in newly established 401(k) and 403(b) plans
• Move rules governing 403(b) plans closer to those of 401(k) plans, including allowing 403(b) plans to offer investments through collective investment trusts, and aligning Hardship Withdrawal rules. Sponsors can offer 403(b) plans through pooled employer plans (PEPs) and multiple employer plans now as well.
• Expand exceptions to early withdrawal taxes from 401(k) and 403(b) plans for public safety officers, corrections officers, emergency situations, private sector firefighters, situations involving domestic abuse, terminal illness, and federally declared disasters
• Expand rules requiring enrollment of part time employees by reducing the service requirement from three years to two.

New or emergent approaches to encourage saving for retirement will be boosted by provisions that:

• Address potential gaps in retirement savings by allowing employers to provide matching retirement plan deposits for employee student loan payments
• Create emergency savings accounts linked to qualified plans
• Remove limits on allocations to qualifying longevity annuity contracts (QLACs)
• Allow early payouts from retirement plans to cover long term care contract premiums

Various government agencies were given “to do” lists, including:

Department of Labor (DOL):

• Create a searchable database to allow plan participants to find contact information for prior plans
• Update rules on DC plan investment disclosures to cover investments consisting of a blend of asset classes
• Review and report on the current interpretive bulletin on pension risk transfers
• Review fiduciary disclosure requirements in participant directed plans
• Issue regulations covering education and information around providing a lump sum offer versus annuity type income
• Study and issue a report on the growing PEP industry
• Study impact of inflation on retirement savings

Department of the Treasury:

• Assist states in locating owners of matured and unredeemed savings bonds,
• Issue sample direct rollover forms
• Consolidate certain required plan notices (with DOL)

Internal Revenue Service:

• Expand self-correction opportunities for employers and IRAs
• Recommend ways to consolidate and improve reporting requirements (along with Treasury, DOL and PBGC)

Government Accountability Office:

• Determine effectiveness of IRC Section 402(f) notices that describe retirement plan distribution options and tax consequences

Recommended Actions

Changes included in this legislation will affect almost all plans. Some of the items will require plan document and SPD changes, some will require administrative procedures to be changed, and others will require decisions on future plan design and could potentially impact the viability of different service providers. Some changes are effective immediately while others are several years off. Bolton recommends employers and plans engage with legal and consulting resources in the next several months to understand, evaluate and make decisions on impacted areas of their programs and what opportunities and risks they provide.

Contact a Bolton consultant to better understand how this legislation might impact your organization.