SECURE 2.0 Act of 2022 and Changes for Retirement Plans
On December 29, 2022, the SECURE 2.0 Act of 2022 (the “Act”) became law (as part of the Consolidated Appropriations Act, 2023). The Act contains many provisions impacting retirement plans, with some changes being mandatory and many being optional. The effective dates of these changes vary, with some effective immediately and others not taking effect until years later.
Many of these changes also have no impact on Wespath-administered retirement plans, as these plans are “church plans,” exempt from the federal law known as the Employee Retirement Income Security Act (ERISA). This summary explains the more significant changes that impact Wespath-administered retirement plans, and the more noteworthy provisions that are optional to plans.
The law includes required changes for Required Minimum Distributions (RMDs), catch-up contributions, and Qualified Longevity Income Contract (QLAC) purchases, among other changes. These are effective immediately unless noted otherwise. Wespath is in the process of analyzing these required changes and the necessary updates to our systems and processes.
Required Minimum Distributions (RMDs)
- The age at which RMDs become payable will increase from 72 to 73 for participants turning age 72 in 2023 or later and will increase to age 75 for participants turning age 74 in 2033 or later.
- Roth accounts in retirement plans will no longer be subject to RMD rules during a participant’s lifetime (effective 2024).
- Surviving spouses may elect to be treated as the employee for RMD purposes (effective 2024), which means their RMDs may be paid out as if the account were their own as a participant, rather than as a beneficiary. This will increase the period of time over which the account may be paid to the surviving spouse.
- The 50% excise tax on late RMDs (imposed on RMD recipients) is reduced to 25%, and further reduced to 10% in certain cases where correction is made within a certain timeframe.
- Increased “catch-up” contributions will be available to participants at ages 60 through 63, up to the greater of $10,000 or 50 percent more than the regular age 50 catch-up limit (effective 2025)
- Catch-up contributions for high earners (more than $145,000 in wages during the previous year) must be made on a Roth, rather than pre-tax, basis (effective 2024).
- The maximum account balance that can be used to purchase a QLAC (offered by Wespath as an optional, customizable feature of LifeStage Retirement Income) is raised to $200,000, adjusted annually for inflation, and the “25% of account balance” limit is removed.
The following changes are optional for retirement plans and are effective immediately unless noted otherwise. Wespath is in the process of determining which of these changes will be adopted by our plans.
- Hardship withdrawal limits for 403(b) plans will become consistent with those for 401(k) plans. Before the Act, hardship withdrawals from 403(b) plans were available from more limited accounts (employee contributions without earnings) than is the case in 401(k) plans. Effective 2024, 403(b) plans may, but aren’t required to, be amended to take advantage of the new rules.
- For hardship withdrawals, plan administrators may rely on an employee’s certification that a hardship withdrawal is based upon immediate and heavy financial need and that the amount requested is no more than is necessary to satisfy that need (effective 2023).
- The Act enables plan sponsors to offer small financial incentives, not paid for with plan assets, such as low-dollar gift cards, to boost employee participation in workplace retirement plans.
- Retirement plans may be amended to permit participants to choose to have employer matching or nonelective contributions made on a Roth, rather than pre-tax, basis (effective immediately).
- The dollar maximum for mandatory distributions from plans (often referred to as “cash outs”) is raised from $5,000 to $7,000, effective in 2024; plans may, but are not required to, increase their limits on cash outs.
- Employer matching contributions may be made to employee accounts based not only on contributions made by the employee to their retirement account, but also based on any qualified student loan payments (effective 2024).
- With respect to plan loans made to individuals affected by federally declared disasters, plans are permitted to provide for a larger amount to be borrowed from a retirement plan (up to $100,000) and for additional time for repayment of the loan (one additional year), effective for disasters occurring after January 26, 2021.