• Annual employee benefit audits for group of plans . Employers with a group of plans ( added by the SECURE Act ) will be required to submit audited financial statements for each plan , if it has 100 participants or more . Plans with fewer than 100 participants included in a group of plans are not required to submit audited financial statements .
• Top-heavy test for excludable employees . Employers may now perform the required topheavy test separately on non-excludable and excludable employees , effective for plan years beginning after Dec . 31 , 2023 .
• Expansion of the Employee Plans Compliance Resolution Systems ( EPCRS ). The EPCRS is expanded to allow additional types of errors to be fixed through the Internal Revenue Service ’ s selfcorrection program any time , effective immediately .
• Expanded benefits to 403 ( b ) plans . Under the new act , 403 ( b ) plans are also eligible for hardship withdrawals and the long-term , part-time employee provision , which was originally introduced in the 2019 SECURE Act , applying only toward 401 ( k ) plans . Additionally , 403 ( b ) plans are now allowed to invest in collective investment trusts .
Beginning in 2023 , 403 ( b ) plans can join a multiple employer plan ( MEP ) or pooled employer plan ( PEP ), which should help smaller employers start plans for their employees to participate in .
EMPLOYEE IMPACT
• Changes to Required Minimum Distributions ( RMDs ). The RMD age will increase from 72 to 73 years old beginning Jan . 1 , 2023 , and later to 75 years old in 2033 . Beginning in 2023 , the RMD penalty will decrease to 25 % from its current 50 % of the RMD amount not taken . The penalty can be reduced to 10 % for Individual Retirement Accounts ( IRAs ) if the account owner withdraws the RMD amount previously not taken and submits a corrected tax return timely .
Starting Jan . 1 , 2024 , employer-sponsored Roth accounts will be exempt from the RMD requirements .
• Higher catch-up contributions . Beginning Jan . 1 , 2025 , individuals between 60-63 years old can make catch-up contributions of up to $ 10,000 annually , indexed for inflation . The current catchup amount is $ 7,500 for individuals 50 years old and older , and beginning in 2024 , the $ 1,000 IRA catch-up contribution limit will be indexed for inflation for individuals who meet this threshold .
Also effective beginning Jan . 1 , 2024 , all catchup contributions must be Roth contributions for individuals who earn more than $ 145,000 annually .
• New “ Saver ’ s Match ” rule . The current “ Saver ’ s Credit ” has been repealed and replaced by a new “ Saver ’ s Match ” rule which matches an IRA / retirement plan contribution for certain individuals who make contributions to employer retirement plans . The match is 50 % of the employee ’ s contributions ( up to $ 2,000 ) and is phased out as income increases . This new rule goes into effect beginning in 2027 .
• Withdrawals for emergency expenses . Generally , individuals must pay an additional 10 % tax when taking early distributions from their retirement plans . In the latest legislation , this penalty tax is waived for emergency expenses related to unforeseen or immediate financial needs . Only one distribution is allowed per year of up to $ 1,000 , and it can be repaid within three years .
• Increased dollar threshold for mandatory distributions . The involuntary distribution threshold is increased from $ 5,000 to $ 7,000 for distributions after Dec . 31 , 2023 .
While most plan amendments required by the SECURE 2.0 Act do not need to be made until the end of the first plan year beginning on or after Jan . 1 , 2025 , plan sponsors are encouraged to work with their benefit plan advisors to plan ahead and ensure compliance as these new rules become effective . To obtain assistance , contact a member of our dedicated Employee Benefit Plan Group today . ■
Issue 1 | 2023 VIEWpoint 3