The SECURE 2.0 Act of 2022 (SECURE 2.0) eliminates the requirement for plan sponsors to provide certain notices to eligible but unenrolled employees in defined contribution plans, changes the delivery method plan sponsors must use to furnish benefit statements to participants in retirement plans, and modifies the language required in annual funding notices under defined benefit plans.  It also requires agencies to perform significant studies on several notices and report their findings to Congress. 

Before SECURE 2.0, plan sponsors of defined contribution plans were required to furnish eligible but unenrolled employees with all notices and other documents, such as summary plan descriptions (SPDs).  Effective for plan years beginning after December 31, 2022, plan sponsors no longer have to furnish unenrolled, eligible employees with notices as long as they provide the unenrolled, eligible employee an SPD and other notices upon their initial eligibility and then deliver an “annual reminder notice” advising of their eligibility to participate in the plan and any otherwise required document the unenrolled participant may request. 

Generally, plan sponsors must provide benefit statements to participants in defined contribution plans every quarter and participants in defined benefit plans once every three years.  Effective after December 31, 2025, defined contribution plans must provide at least one benefit statement on paper in written form each year, and defined benefit plans must provide at least one benefit statement on paper in written form every three years.  Participants may elect to opt out of receiving the paper statement. 

SECURE 2.0 adds another requirement to the 2002 e-delivery safe harbor:  effective for participants first eligible to participate in a retirement plan after December 31, 2025, plan sponsors must now provide a one-time initial paper notice of their right to request all required documents be furnished on paper in written form before the plan sponsor may begin furnishing benefits statements electronically under the safe harbor.  A plan may deliver a duplicate electronic statement in any situation where the plan furnishes a paper benefit statement.

The annual funding notice, provided annually to defined benefit plan participants, is no longer required to disclose the plan’s “funding target attainment percentage” and will instead need to describe the plan’s “percentage of plan liabilities funded.” This change is effective for plan years beginning after December 31, 2023.

Congress also demonstrated an interest in improving certain plan-related participant notices and disclosures by assigning these tasks:

  • The Government Accountability Office (GAO) will prepare a report analyzing the effectiveness of Internal Revenue Code §402(g) notices required to be provided by plan administrators of qualified plans to recipients of eligible rollover distributions, describing different distribution options and related tax treatment.  The GAO’s report must analyze the effectiveness of §402(g) notices and make recommendations, if needed, to enhance eligible rollover distribution recipients’ understanding of various distribution options, the tax consequences of each option, and spousal rights.  The GAO has 18 months to complete this task. 
  • The Department of Labor (DOL) must review its fiduciary disclosure requirements for participant-directed individual account plans.  They must explore potential improvements to the disclosure requirements that could enhance participant understanding of defined contribution plan fees and expenses and the impact of such fees and expenses over time.  The DOL will then report to Congress on their findings, including the advisability of potential consumer education around financial literacy concepts applicable to retirement plan fees and any recommended legislative changes needed to address those findings.  The DOL has three years to complete this task.
  • The DOL and Treasury (IRS) will adopt regulations permitting, but not requiring, the consolidation of certain retirement plan participant notices.  The participant notices eligible for consolidation include, among others, the §404(c)(5)(B) notice — concerning default investment arrangements under participant-directed individual account plans and the §514(e)(3) notice — concerning automatic contribution arrangements.  Any combined notice must still satisfy the requirements of all notices and may not obscure or fail to highlight the primary information required by each notice.  The DOL and IRS have two years to complete this task.                   

If you have questions about SECURE 2.0, please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work.

Employees, especially those far from retirement, are sometimes hesitant to put money into their employer’s 401(k) plan, knowing that their money won’t be available to them if unexpected expenses arise. Congress and the Biden administration, recognizing the long-term benefit of incentivizing retirement savings, included two new means for plan participants to access emergency funds in the new “SECURE 2.0” legislation, which was signed into law at the end of last year.   We provide overviews of SECURE 2.0 here and here, and below discuss these new emergency distribution and Roth emergency savings account options. 

Emergency Distributions

Effective for plan years starting on or after January 1, 2024, 401(k) plans (along with 403(b) plans, 457(b) plans and IRAs) may allow participants to access up to $1,000 of their account balance (including pre-tax contributions) without penalty, in the event of an “unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses.”  This new plan feature is modeled after certain other special in-service distribution options—namely, qualified birth/adoption distributions (QBADs) and the coronavirus-related distributions (CRDs) allowed under the CARES Act. Participants need only self-certify their need for the emergency distribution in order to request it. 

Emergency distributions may be requested once per calendar year. However, a participant may not take another emergency distribution from the same plan or IRA within three years, unless the participant has already rolled their prior distribution back into the plan or IRA (as described below), or contributed to the same plan or IRA in an amount at least equal to their prior distribution.

As with QBADs and CRDs, a participant who takes an emergency distribution can also roll the distribution back into the same plan or into an IRA within three years to avoid taxation on the distribution. If the amount is rolled back into a plan/IRA in a later year, however, it will require an amendment of the participant’s tax return for the year of the distribution.

Roth Emergency Savings Accounts

Also effective in 2024, plans may allow participants who are non-highly compensated employees (i.e., for 2024, those who earned less than $150,000 in 2023) to contribute up to $2,500 in post-tax deferrals to an emergency savings account under such plan, which will be treated as Roth contributions. Sponsors may even elect to set up automatic enrollment in this plan feature, with contributions of up to 3% of a participant’s pay until the contribution limit is hit, unless a participant affirmative opts out.

Of note and likely key for both plan administration and investment communications – participants’ emergency savings account contributions must be invested in a manner that preserves capital – e.g., riskier investments that may be available under a plan, such as equity, aren’t allowed.

Plan sponsors may not themselves contribute amounts to participants’ emergency savings accounts but are required (if their plan provides for matching contributions) to match any emergency savings account contributions by putting the corresponding match into the non-emergency savings account portion of the plan.  

Participants may withdraw from the emergency savings account on at least a monthly basis, penalty free (though plans may charge a fee after the first four withdrawals per year). The legislation does, however, give plan sponsors some authority to prevent participants from using these accounts in a manner other than that intended by the SECURE 2.0 Act of 2022, by putting money into the emergency savings account, receiving the match, and then immediately withdrawing their own contributions. 

When a participant with an emergency savings account balance terminates employment, a plan must allow for their balance to be (1) rolled into their plan Roth account (if applicable), (2) rolled into another plan or IRA, or (3) distributed to the participant. Since contributions to the emergency savings accounts are treated like Roth deferrals, any distribution (including earnings) will not be taxable to the participant. 

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While each of these new features are optional for plans, we do expect they will be implemented by many sponsors, and that they will be popular with potentially hesitant plan participants. 

If you have questions about emergency distributions and/or savings accounts under SECURE 2.0, please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work.

The SECURE 2.0 Act of 2022 (SECURE 2.0) provides welcome relief to private sector single employer sponsors of defined benefit pension plans (Pension Plan(s)). Effective for plan years beginning on and after January 1, 2024, SECURE 2.0 caps the variable rate premium paid by Pension Plan sponsors to the Pension Benefit Guaranty Corporation (PBGC) at $52 per $1,000 or 5.2% of a Pension Plan’s unfunded, vested benefit liability. SECURE 2.0 does not change the flat rate premium also paid by Pension Plan sponsors and charged on a per participant basis.

The purpose of the PBGC is to protect the vested benefit of Pension Plan participants if the Pension Plan in which they participate fails. The PBGC collects premiums from employers that sponsor Pension Plans to fund its responsibility. Because the PBGC is not funded by general tax revenue, it must heavily rely on the premiums paid by Pension Plan sponsors.

Single employer sponsors of Pension Plans must pay two types of premiums to the PBGC: (i) a per participant flat rate premium ($96 for 2023) and (ii) a variable rate premium based on a percentage of a given Pension Plan’s unfunded, vested benefit liability. In addition, under the Bipartisan Budget Act of 2013, both the flat rate and variable rate premium became subject to inflation indexing tied to increases in wage growth.

The change to index premiums has been widely criticized because the increased expense further discourages Pension Plan formation and encourages Pension Plan sponsors to terminate, freeze, or “de-risk” their Pension Plans partly to manage such ever increasing costs. In response to these criticisms and likely because the funded status of the single employer PBGC “insurance” fund has improved, Congress seized the opportunity to end the indexing of variable rate premiums. Note, however, Congress may increase the variable rate premium again, but to do so, it must amend SECURE 2.0. 

We are available to help plan administrators understand and implement the requirements of SECURE 2.0. Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

Most Americans prefer not to pay more in income tax than absolutely required or to pay taxes any sooner than necessary.  This includes many retired individuals who do not need to tap into their employer-sponsored retirement plan benefits yet but are required to do so – and to pay taxes on those benefits – once they attain a certain age.  The amount a retiree must take for a given year (and on which the retiree must pay taxes) is based on the value of the retiree’s account divided by the Internal Revenue Service’s applicable life expectancy table.  For retirees hoping to further postpone the year as of which they must begin taking retirement plan benefits, Division T of the SECURE 2.0 Act of 2022 (SECURE 2.0) delivered a holiday gift – one of several delivered by a bipartisan group of legislators in the Consolidated Appropriations Act of 2023.

Before SECURE 2.0, a required minimum distribution (RMD) generally must begin by April 1st, following the year in which a retiree attains age 72.  This is the RMD beginning date set by the 2019 SECURE Act, effective for distributions after December 31, 2019.  Before that, retirement plan participants had to start taking RMDs from their retirement plans by April 1st after attaining age 70 ½.

Effective for distributions made after December 31, 2022, Section 107 of SECURE 2.0 increases the RMD age to 73 for retirees who (a) attain age 72 after December 31, 2022, and (b) attain age 73 before January 1, 2033.  It then increases the RMD age to 75 for retirees who attain age 74 after December 31, 2032.

Additionally, Congress directed the Internal Revenue Service to update its regulations to eliminate what can amount to a penalty on plan participants with accounts that include annuity contracts.  Under current regulations, if a retirement account holds an annuity contract in addition to other assets, the RMD amount is determined by bifurcating the account between the annuity portion and the other assets, with the result that RMD amounts can be higher than they otherwise would be if no part of the account value was attributable to an annuity contract.  Section 204 of SECURE 2.0 essentially provides that the plan participant can elect to have the RMD calculated based on the aggregated account.  Until new regulations are issued, plans can rely on a good faith interpretation of the law. 

For RMD errors, Section 302 of SECURE 2.0 reduces the excise tax applicable when there’s a failure to take the full amount of an RMD timely.  Under prior law, the excise tax was equal to 50% of the amount by which a retiree’s RMD exceeded the amount actually distributed, if any, by the retiree’s required beginning date.  SECURE 2.0 reduces that excise tax penalty to 25% of the amount that should have been distributed.  (The penalty is further reduced to 10% if the retiree takes a corrective distribution within two years.) 

Finally, under prior law, RMDs from a Roth IRA account did not have to begin before the account owner’s death, but no such exception to the RMD distribution rules existed for Roth accounts under employer plans, like 401(k) plans.  Section 325 of SECURE 2.0 ends the pre-death RMD requirement for Roth designated accounts in a 401(k) plan, effective for taxable years beginning after December 31, 2023.  However, note that, for retirees who attain age 73 in 2023, Roth account RMDs still must be made by April 1, 2024.     

Stay tuned for more in our series on SECURE 2.0.  Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

On December 29, 2022, President Biden signed the Consolidated Appropriations Act, 2023, and Division T of the Act contains legislation dubbed the SECURE 2.0 Act of 2022 (SECURE 2.0).  SECURE 2.0 contains an important provision regarding the eligibility of part-time employees to participate in an employer’s 401(k) plan or ERISA-governed 403(b) plan. The fundamental principle behind SECURE 2.0 is to make it easier for Americans to save for retirement, and this new provision will allow part-time workers who might previously have been excluded from participation to save for retirement just like their full-time counterparts.

Long-Time Part-Time Workers Are Eligible

The long-standing rule under ERISA Section 202 provides that an employee cannot be excluded from participation in a 401(k) plan beyond the later of the date the employee attains age 21 or completes one year of service. For this purpose, a year of service is defined as 1,000 hours of service during a 12-month period. 

The SECURE Act (Setting Every Community Up for Retirement Enhancement) (enacted in 2019) provided that employees who perform 500 hours of service during three consecutive 12-month periods must also be permitted to participate in the employer’s 401(k) plan. 

Section 125 of SECURE 2.0 requires that employees who work “two consecutive 12-month periods during each of which the employee has at least 500 hours of service” must be permitted to participate in the plan.  

Special Considerations

Exclusions: This rule does not apply to employees covered by a collective bargaining agreement, nonresident aliens who receive no earned income, or certain students.

Eligibility Date: Once a part-time employee works the required hours for two consecutive years, the employee must be allowed to contribute to the plan by the earlier of the first day of the plan year after the date the employee satisfied the requirements or six months after the date the employee satisfied the requirements.

Counting Hours Tips: Start counting hours on the date the employee’s employment commenced. If the employee does not complete the required hours of service during the initial 12-month period of employment, employers can then use the first day of the plan year for hours counting purposes going forward.

Vesting Implications: ERISA’s vesting rules will correspondingly be updated by SECURE 2.0 to provide that employees who participate in the plan under this special rule shall be credited with a year of service for each year in which they perform 500 hours of service.

Matching Contributions: Employers do not have to make nonelective or matching contributions for employees who become eligible to participate in the plan under this special rule.

Nondiscrimination Testing: Employers may elect to exclude employees who become eligible to participate in the plan under this special rule for certain nondiscrimination testing purposes. 

Effective Date

This provision of SECURE 2.0 is effective for plan years beginning after December 31, 2024.

Consider these examples: ABC Company sponsors the ABC Company 401(k) Plan, which is a calendar year plan. Jim is an employee of ABC Company, and Jim has been working 600 hours per year since 2019. Julia was hired on June 1, 2022, and works 900 hours per year. When should Jim and Julia become eligible to participate in ABC Company’s 401(k) plan?

  • Under the SECURE Act, ABC Company should have tracked Jim’s hours beginning on January 1, 2021, and after working 600 hours in 2021, 2022, and 2023, Jim would be eligible to participate in the ABC Company 401(k) Plan on January 1, 2024.
  • Under SECURE 2.0, 12-month periods beginning before January 1, 2023, shall not be considered.  Thus, if Julia works 900 hours in 2023 and 2024, she will become eligible to participate in the ABC Company 401(k) Plan on January 1, 2025.

Careful Administration is Key

Retirement saving plan eligibility for part-time employees is an area in which many employers inadvertently exclude eligible employees. As a result, the Internal Revenue Service has issued rules that govern correction where part-time employees are improperly excluded.

If you have questions about the new rules for part-time workers under SECURE 2.0, or if your plan does not allow part-time employees to save for retirement, please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work.

The SECURE 2.0 Act of 2022 (SECURE 2.0) contains several provisions that allow the federal government to have its cake (more tax dollars) and eat it too (more retirement savings, easing Social Security challenges). With SECURE 2.0, we find more Roth, more catch-up, and catch-up as Roth. 

More Roth

Named after the late Delaware Senator William Roth, Roth IRA first became a savings opportunity in 1998.  Starting January 1, 2006, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) added this design feature to 401(k) plans. Although, for the most part, Roth deferrals are treated like pre-tax elective deferrals for plan purposes, they differ in two material respects: 

  1. Roth deferrals are subject to income taxation when contributed to the plan; and
  2. If all of the applicable requirements are met to comprise a “qualified distribution,” the earnings that accrue with respect to the Roth deferral will avoid taxation when distributed. 

Roth elective deferral opportunities and in-plan Roth conversion and rollover opportunities have become relatively common plan features. They have the potential to create powerful savings tools, especially for those in lower income tax brackets. 

Roth treatment historically has been limited to elective deferrals. That changed with SECURE 2.0.  Effective now (i.e., the date of enactment of SECURE 2.0), Section 402A of the tax code permits 401(k), 403(b), and governmental 457(b) plans to permit employees to elect to have employer matching or nonelective contributions treated as designated Roth contributions.  

This avoids the need for participants to jump through the hoops of electing an in-plan Roth conversion with respect to these employer accounts, if permitted by the plan, to achieve this result. This also has the potential to produce marginal tax savings on the accumulated earnings if Roth treatment is elected at the time of contribution (rather than conversion).  

Although immediately effective, employers interested in this opportunity likely will have to wait until payroll and recordkeeping systems are updated to accommodate this change.   

More Catch-Up

Those among us who are familiar with 457(b) plans and 403(b) plans know there are special catch-up contribution rules permitted in these plans that provide enhanced savings opportunities to those approaching retirement age. The concept is simple – let employees save more as they are preparing for retirement. 

For example, Section 403(b) plans can allow employees who have at least 15 years of service to defer up to a lifetime maximum of $15,000 more into the plans than the customary 402(g) deferral limit of $22,500 in 2023. The annual amount is determined using a formula that takes into account years of service, prior elective deferrals, and prior Roth deferrals. 

Likewise, 457(b) plans can allow special catch-up contributions during the 3 years immediately preceding normal retirement age. This allows eligible participants to double their deferral limit or contribute the annual limit plus the amount they did not contribute during prior years, whichever is less. 

Section 109 of SECURE 2.0 brings this concept to 401(k) plans. Starting in 2025, participants who are age 60, 61, 62, and 63 will be subject to a higher catch-up contribution limit. In lieu of the standard Section 414(v) catch-up contribution limit applicable to those who are age 50 or older ($7,500 for 2023), these eligible participants approaching retirement may defer the greater of $10,000 (indexed) or 50% more than the regular catch up contribution limit. 

For example, if, hypothetically, the regular catch-up contribution limit at the time is $9,000, and the indexed special catch-up contribution limit is $11,500, a 60-year-old participant could contribute $13,500 to the plan (the greater of $9,000 x 1.5 = $13,500 or $11,500). 

Catch-Up as Roth

So, what is the catch? Section 603 of SECURE 2.0 amends the catch-up contribution rules to require certain highly paid workers to contribute all of their catch-up contributions as Roth contributions starting in 2024. In many instances, this means the government will receive greater tax revenues on the same dollar because those who are actively working customarily are in a higher income tax bracket than they will be when drawing upon retirement savings. So, taxation is the cost of stockpiling retirement savings for these participants. 

Who is highly paid for this purpose? We do not use the standard highly compensated employee definition for this purpose, which is $150,000 for 2023. Instead, we need to keep track of another dollar limit. This special rule applies to anyone earning more than $145,000 in FICA wages in the preceding year, which is subject to indexing in $5,000 increments. Highly paid participants who do not receive FICA wages (e.g., partners) are not currently captured by this rule, but this may be an oversight that is subject to change.

So, back to our example, if the 60-year-old participant is earning more than $145,000 (indexed) in FICA wages when the higher catch-up contribution limit is in effect and wants to take advantage of deferring an additional $13,500 into the plan, that $13,500 will need to be a Roth contribution.  However, if this participant was earning $145,000 (indexed) or less, the $13,500 catch-up contribution could be made on a pre-tax basis.

There are many questions about this change, and implementing guidance is needed. For example, are new hires or employees acquired in connection with a business transaction subject to this requirement in their first year of employment? What does the administrator do if the highly paid participant makes a pre-tax deferral election? For example, many plans process single deferral elections.  Once the regular deferral bucket fills, the deferrals are recharacterized as catch-up contributions. This administrative process will need to be revised, given this change in the law.       

Note that offering only pre-tax catch-up contributions is not an option to avoid this complexity.  SECURE 2.0 specifies that if any participant would be subject to this Roth catch-up rule, the plan must offer a Roth catch-up contribution option in order for any participant (even those earning $145,000 or less) to make catch-up contributions to the plan. Congress designed this provision to ensure plans offer this Roth catch-up option.

Participants also will have important financial and distribution planning questions to resolve. For example, if these catch-up contributions are the first Roth deferrals the individual makes, distribution planning will be needed to avoid taxation on the earnings that accumulate.  Distributions from Roth accounts are not treated as qualified distributions if amounts are distributed within a 5-year period of when the first Roth contribution was made to the plan (or another plan in the case of a rollover). 

Participant communication will be key, and amendments are on the horizon. Stay tuned for more in our series on SECURE 2.0.

Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

On December 29, 2022, President Biden signed the Consolidated Appropriations Act, 2023, a massive omnibus spending bill that will keep the government funded through the end of its September 30, 2023, fiscal year.  Included in Division T of the Act is the bipartisan legislation dubbed the SECURE 2.0 Act of 2022 (SECURE 2.0).  Containing voluminous changes, SECURE 2.0 follows the trend set by the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 to reduce barriers and enhance retirement savings opportunities – especially for those with less disposable income. 

During the next several weeks, we will publish a series of articles that will dive deeply into the “need to know” provisions of SECURE 2.0 for our employer clients.  From notice changes to student loan matching opportunities and so much in between, SECURE 2.0 will be a catalyst for both administrative and plan design changes. 

Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

As expected, the SECURE 2.0 Act of 2022 (SECURE 2.0), an extensive piece of legislation aimed at retirement plan reform, is included in the Consolidated Appropriations Act, 2023 (the Spending Bill).  The 4,000+ page, $1.7 trillion Spending Bill was released early morning on Tuesday, December 20, with a passage deadline of Friday, December 23.  If the deadline is not met, another continuing resolution must be passed to avoid a government shutdown.   

SECURE 2.0 includes over 100 provisions intended to expand coverage, increase retirement savings, and simplify and clarify retirement plan rules.  The retirement package is a consolidation of three bills – the Senate Health, Education, Labor and Pensions Committee’s Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act (the RISE & SHINE Act), the Senate Finance Committee’s Enhance America’s Retirement Now (EARN) Act, and the House Ways and Means Committee’s Securing a Strong Retirement Act (the only included bill without a creative acronym).

SECURE 2.0 is intended to build on the Setting Every Community Up for Retirement Enhancement Act of 2019 (the original SECURE Act).  The SECURE Act is the less expansive predecessor to SECURE 2.0, ushering in quieter revisions to retirement plan rules, such as raising the age of required minimum distributions (RMDs) and eliminating age limits for traditional IRA contributions.  Bolstered by the overwhelming bipartisan support of the SECURE Act, SECURE 2.0 makes even more aggressive changes to retirement plan governance, including key provisions such as:

  • Mandatory automatic enrollment.  Effective for plan years beginning after December 31, 2024, new 401(k) and 403(b) plans would have to automatically enroll participants upon attaining eligibility.  The automatic deferrals would start at between 3% and 10% of compensation, increasing by 1% each year to a maximum of at least 10% but no more than 15% of compensation.
  • Increased age for RMDs.  Participants are generally required to take retirement plan distributions upon attainment of a certain age.  Before the SECURE Act, the age for RMDs was 70.5.  The SECURE Act increased that age to 72.  SECURE 2.0 further increases the age to 73, beginning on January 1, 2023, and again to age 75 beginning on January 1, 2033.  In addition, SECURE 2.0 would reduce, and sometimes, eliminate altogether, the excise tax imposed on failing to take RMDs.
  • Increase the catch-up limit.  The dollar amount that participants can elect to defer each year is capped at a statutory maximum.  Under current law, participants who age 50 or older may defer an additional amount over the statutory maximum, referred to as a “catch-up.”  Beginning in 2025, SECURE 2.0 would increase the catch-up amount by at least 50% for participants who are between the ages of 60 and 63.   
  • Matching of student loan repayments. Effective for plan years beginning after December 31, 2023, employers could match student loan repayments as if the student loan repayments were deferrals.
  • Small financial incentives for participation.  Employers could offer de minimis financial incentives, such as low-dollar gift cards, to boost participation in retirement plans.  The financial incentives cannot be purchased with plan assets.
  • Emergency withdrawals.  SECURE 2.0 would permit penalty-free distributions for “unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses” up to $1,000.  Only one distribution would be permitted every three years, or one per year if the distribution is repaid within three years. SECURE 2.0 would also permit penalty-free withdrawals of small amounts for participants who need the funds in cases of domestic abuse or terminal illness.
  • Automatic rollovers.  Under current law, plans can automatically distribute small accounts of less than $5,000 to former participants.  If the distribution is greater than $1,000, the plan must roll the account into an IRA.  Effective 12 months from enactment, SECURE 2.0 would permit the transfer of default IRAs into the participant’s new employer’s plan, unless the participant affirmatively elects to the contrary. SECURE 2.0 would also increase the limit for automatic rollovers from $5,000 to $7,000.
  • Eligibility for long-term, part-time workers.   Under current law, employees with at least 1,000 hours of service in a 12-month period or 500 hours of service in a three-consecutive-year period must be eligible to participate in the employer’s qualified retirement plan.  SECURE 2.0 would reduce that three-year rule to two years, for plan years beginning after December 31, 2024. 
  • Emergency savings accounts.  If provided by the terms of a plan, non-highly compensated employees could defer up to the lesser of 3% of compensation or $2,500 (post-tax) to an emergency savings account under the plan. 
  • Lost and found.  SECURE 2.0 would create a national online searchable database to enable employers to locate “missing” plan participants, and plan participants to locate retirement funds. 
  • Unenrolled employee notices.  SECURE 2.0 would eliminate the requirement to send certain notices to employees who have elected not to enroll in an employer’s retirement plan; provided, that the employees are provided with an annual reminder notice of eligibility to participate.

The Senate is expected to take up the Spending Bill on December 22.  Assuming passage in the Senate, the House will vote on December 23.  Because SECURE 2.0 essentially combines three previously proposed bills with heavy bipartisan support, it is unlikely extensive revisions to SECURE 2.0 will be necessary to pass the Spending Bill.  Whether other provisions of the Spending Bill will survive, however, is much less clear.  Final passage of the Spending Bill in some form or another is anticipated by the December 23 deadline.    

Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.


We recently summarized the regulatory back and forth of the past few years relating to environmental, social, and corporate governance (“ESG”) factors and their impact on ERISA retirement plans and the fiduciaries that oversee them. 

As expected, the Biden administration released a proposed rule last year that re-opened the door (previously closed by the Trump administration) for retirement plan fiduciaries to consider ESG factors as part of their overall process in choosing retirement plan investments and making proxy voting decisions.

After reading the proposed rule, many were concerned that it imposed a mandate to consider ESG factors.  The Department of Labor assuages that concern with the recent release of the final rule.  In the preamble to the final rule, the DOL confirms that the rule imposes no such mandate (and modified the questioned language of the proposed rule in the final rule). 

The final rule reflects these three principles: 

  1. A fiduciary must base a determination relating to plan investments on factors that the fiduciary reasonably determines are relevant to a risk and return analysis, using appropriate investment horizons consistent with the plan’s investment objectives and considering the funding policy of the plan;
  2. The risk and return factors may include the economic effects of climate change and other environmental, social, or governance factors on the particular investment or investment course of action.  Whether any particular consideration is a risk-return factor depends on the individual facts and circumstances; and
  3. The weight given to any factor by a fiduciary should appropriately reflect an assessment of its impact on risk and return.

The DOL is also clear that nothing in the final rule changes the longstanding principle that “the duties of prudence and loyalty require plan fiduciaries to focus on relevant risk-return factors and not subordinate the interests of participants and beneficiaries (such as by sacrificing investment returns or taking on additional investment risk) to objectives unrelated to the provision of benefits under the plan.” 

The final rule also provides that the standards for qualified default investment alternatives (“QDIAs”), i.e., the investments into which a plan places participant funds when participants haven’t made an investment election, are the same as any other plan investment.  (This is a change from the prior regulations.)

Another key component of the final rule is an amendment to the “tiebreaker” test under the current regulations, which requires competing investments to be indistinguishable based entirely on pecuniary factors before fiduciaries can break a tie with collateral factors (like ESG).  The current regulations also impose a special disclosure requirement if considering such collateral factors.  The final rule instead requires a fiduciary to conclude prudently that competing investments equally serve the financial interests of the plan over the appropriate time horizon.  It also removes the special disclosure requirement.

The final rule further indicates that fiduciaries do not violate their duty of loyalty solely because they take participants’ preferences into account when choosing a menu of plan investment options for participant-directed individual account plans.  The DOL recognizes that considering whether an investment option aligns with participants’ preferences can be relevant to furthering the purposes of a plan—i.e., greater participation and higher deferral rates, as suggested by commenters, which may lead to greater retirement security.  Plan fiduciaries may see this as a means to consider other types of investments in response to participant requests, such as private equity and crypto-based products (though the choice of investment options will, first and foremost, always be subject to general fiduciary considerations).

Finally, the final rule retains the core principle that when a plan’s assets include shares of stock, the fiduciary duty to manage plan assets includes the management of shareholder rights related to those shares, such as the right to vote proxies.  It does make certain changes that may encourage proxy voting (rather than abstention) and clarifies that proxy voting and other exercises of shareholder rights carry the same fiduciary obligations as any other plan fiduciary activities.

The final rule will go into effect 60 days following its publication in the Federal Register, with extended deadlines for certain proxy provisions.

Members of the Jackson Lewis Employee Benefits practice group and the newly launched Environmental, Social, and Governance (ESG) service group continue to review the text of the final rule and are available to assist.  Please contact the Jackson Lewis attorney with whom you regularly work if you have questions.

As group health plan sponsors, employers are responsible for ensuring compliance with the prescription drug data collection (RxDC) reporting requirements added to ERISA by the Consolidated Appropriations Act of 2021 (CAA).  Under ERISA section 725, enforced by the US Department of Labor (DOL), group health plans (not account-based plans, e.g., health reimbursement arrangements and health savings accounts, or excepted benefit arrangements) must report details regarding the plan’s prescription drug benefit utilization, including the drugs most frequently dispensed, the most expensive drugs, and the drugs with the highest cost increase for a given calendar year.  Reporting is to be made annually to the US Department of Health and Human Services’ (HHS) CMS enterprise portal’s Health Insurance Oversight System (HIOS) module, starting with the report due by December 27, 2022, for the 2020 and 2021 calendar years.  After that, annual reporting is due by June 1st following the calendar year (so, the 2022 calendar year report is due by June 1, 2023).  The DOL must thereafter post aggregated information on its website so that the public can see trends in prescription drug utilization and pricing.        

What’s required.  Under regulations issued jointly by HHS, DOL, and the US Treasury Department, plans must submit RxDC reports which include –

  • General information about the plan like the plan sponsor, plan year, number of participants, market segment (small or large group and fully-insured or self-insured), insurer and other vendors, and the states in which coverage is offered, etc. (“plan list” information – see the template document for reporting, using code P2 for group health plans, at this link);
  • Eight data files:
    • Premium/cost and life-year (average number of covered members) data (D1),
    • spending by six categories – hospital, primary care, specialty care, other medical costs and services, known medical benefit drugs, and estimated medical benefit drugs (D2),
    • top 50 most frequently dispensed brand name drugs by state and market segment (D3),
    • top 50 most costly drugs by state and market segment (D4),
    • top 50 drugs by spending increase by state and market segment, excluding drugs issued an Emergency Use Authorization or not FDA-approved (D5),
    • prescription drug spending totals (D6),
    • prescription drug rebates by therapeutic class (D7),
    • and prescription drug rebates for the top 25 drugs by state and market segment (D8); and
  • A narrative that describes the impact of prescription drug rebates on premium and cost-sharing, how the employer size was estimated (for self-insured plan sponsors), how bundled or alternative payment arrangements attributable to drugs covered under a medical benefit were estimated, and how net payments from government reinsurance and cost-sharing reduction programs were considered (if applicable).  The narrative also is used to identify any drugs prescribed for which a National Drug Code (NDC) was not on the CMS RxDC code crosswalk, and the types of rebates and other remuneration included in or excluded from the D8 data file.     

How to comply.  HIOS issued specific reporting instructions which explain the reporting requirements in detail and assure plan sponsors that submission for a plan “is considered complete if CMS receives all required files, regardless of who submits the files.”  Many group health plan vendors (insurers, third-party administrators, pharmacy benefit managers, etc.) have proactively contacted plan sponsors to assure them that the vendor will report at least some of the information on the plan’s behalf.  However, not all vendors are willing to accept responsibility for the RxDC reporting requirements.  Employers need to know which reporting obligations will be fulfilled by the group health insurer or other vendor and which reporting obligations must be satisfied by the plan sponsor.  Most plan sponsors are wise to be prepared to upload at least some of the data to the HIOS module themselves, which means first setting up a HIOS account on the CMS portalHIOS accounts can take a couple of weeks to set up, so it’s important for plan sponsors to act on this now if they’ve not already done so.  CMS has provided detailed instructions for setting up the HIOS account. 

Compliance issues.  The statute and regulations impose the RxDC reporting requirements on group health plans, which, by default, usually means that requirements and liability for noncompliance are imposed on plan sponsors (generally, employers).  Thus, each group health plan sponsor should ensure that all of the RxDC reporting requirements are satisfied for each group health plan subject to the reporting requirements.  Employers should obtain written agreements from plan vendors identifying what data each vendor will upload.  Note that the employer remains liable for noncompliance (and subject to excise tax and potential civil penalties), even if it has an enforceable agreement with its vendor to ensure compliance unless the plan is fully-insured and the agreement is with the insurer.  Unfortunately, only the reporting entity can view the files it uploads to HIOS, so there is no way for an employer to confirm on the HIOS module that a vendor uploaded the file(s) it agreed to upload on behalf of the employer’s group health plan.  Instead, the employer should obtain written assurance from the plan’s vendor(s) and rely on contractual provisions for recourse if a vendor fails to fulfill its RxDC reporting service as agreed.    

If you have questions about this or any other employee benefits matter, contact the Jackson Lewis attorney with whom you usually work or anyone in the firm’s Employee Benefits Practice Group.