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.

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.

On March 29, 2022, the House of Representatives passed the Securing a Strong Retirement Act of 2022 (SECURE 2.0, HR 2954).  SECURE 2.0 is a comprehensive bill designed to increase access to retirement savings and includes a variety of provisions that would affect employer-provided retirement plans.

On June 14, 2022, the Senate Health, Education, Labor, and Pensions (HELP) Committee unanimously approved its version of SECURE 2.0, the Retirement Improvement and Savings Enhancement to Supplement Health Investments for the Nest Egg (RISE and SHINE, S. 4354) Act.


The RISE and SHINE Act builds on SECURE 2.0, with some key differences.  Provisions in the RISE and SHINE Act not in SECURE 2.0 include:

  • Allowing the use of plan assets to pay some incidental plan design expenses;
  • Raising the limit on mandatory cash-out distributions from $5,000 to $7,000; and
  • The inclusion of the Emergency Savings Act of 2022 (the Emergency Savings Act). Under Emergency Savings Act, 401(k) plans could include emergency savings accounts.  Participants could make pre-tax contributions to their emergency savings accounts.  Employers could match those contributions, but the total amount in a participant’s emergency savings account could not exceed $2,500.  Participants could withdraw amounts from their emergency savings accounts generally at any time, without the requirements imposed on hardship withdrawals.

Provisions in SECURE 2.0 not in RISE and SHINE include:

  • Increasing the catch-up contribution limit;
  • Permitting matching contributions on student loan payments; and
  • Raising the required minimum distribution age.


The Senate Finance Committee anticipates releasing its retirement reform bill by July 4.  The expectation is for the Finance Committee bill and the HELP Committee bill to merge into a final bill, which the Senate will vote on later this year.  The Senate bill will then be reconciled with SECURE 2.0, and both chambers will vote on the combined bill.

We will continue to monitor retirement reform bills as they move through Congress and will have additional updates as information becomes available.  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 March 29, 2022, the House of Representatives passed the Securing a Strong Retirement Act of 2022 (“SECURE 2.0”, HR 2954).  The vote was largely supported by both parties (414-5).  The Senate will likely act on the bill later this spring.  While we expect several changes in the Senate version, it is widely anticipated that the legislation will ultimately become law in some form.  Below we highlight a few provisions of the bill we believe are of interest to employers.

Expanding Automatic Enrollment in Retirement Plans

For plan years beginning after December 31, 2023, SECURE 2.0 would mandate automatic enrollment in 401(k) and 403(b) plans at the time of participant eligibility (opt-out would be permitted).  The auto-enrollment rate would be at least 3% and not more than 10%, but the arrangement would need an auto-escalation provision of 1% annually (initially capped at 10%).  Auto-enrolled amounts for which no investment elections are made would be invested following Department of Labor Regulations regarding investments in qualified default investment alternatives.  Plans established before the enactment of the legislation would not be subject to these requirements.  Additional exclusions also apply.

Increase in Age for Required Beginning Date for Mandatory Distributions

For certain retirement plan distributions required to be made after December 31, 2022, for participants who attain age 72 after such date, the required minimum distribution age is raised as follows: in the case of a participant who attains age 72 after December 31, 2022, and age 73 before January 1, 2030, the age increases to 73; in the case of a participant who attains age 73 after December 31, 2029, and age 74 before January 1, 2033, the age increases to 74; and in the case of a participant who attains age 74 after December 31, 2032, the age increases to 75.

Higher Catch-Up Limit for Participants Age 62, 63 and 64

For taxable years beginning after 2023, the catch-up contribution amount for certain retirement plans would increase to $10,000 (currently $6,500 for most plans) for eligible participants who have attained ages 62-64 by the end of the applicable tax year.

Treatment of Student Loan Payments As Elective Deferrals for Purposes of Matching Contributions

For plan years beginning after December 31, 2022, employers may amend their plans to make matching contributions to employees based on an employee’s qualified student loan payments.  Qualified student loan payments are defined in the legislation as amounts in repayment of qualified education loans as defined in Section 221(d)(1) of the Internal Revenue Code (which provides a very broad definition).   This student loan matching concept is not a novel idea – prior proposed legislation included a similar provision, and the IRS has approved student loan repayment matching contributions in a private letter ruling.  Given the difficulty many employers are finding in hiring and retaining employees, this provision of SECURE 2.0 may prove popular if it ultimately becomes law.

Small Immediate Financial Incentives for Contributing to a Plan

Under the “contingent benefit rule,” benefits (other than matching contributions) may not be contingent on the employee’s election to defer (subject to certain exceptions).  Thus, an employer-sponsored 401(k) plan with a cash or deferred arrangement will not be qualified if any other benefit is conditioned (directly or indirectly) on the employee’s deferral election.  SECURE 2.0 would add an exception to this restriction for de minimis financial incentives (such as gift cards), effective as of the date of enactment.

Safe Harbor for Corrections of Employee Deferral Failures

Under current law, employers could be subject to penalties if they do not correctly administer automatic enrollment and escalation features.  SECURE 2.0 encourages employers to implement automatic enrollment and escalation features by waiving penalty fees if, among other requirements, they correct administrative errors within 9 ½ months after the last day of the plan year in which the errors are made.  This provision would be effective as of the date of enactment.

One-Year Reduction in Period of Service Requirement for Long-Term Part-Time Workers

In a provision aimed at increasing retirement plan coverage for part-time employees, the bill would reduce the current requirement to permit certain employee participation following three consecutive years during which the employee attains 500 hours of service to two-consecutive years during which the employee attains 500 hours of service.   The preceding are the maximum service requirements that a plan can impose – employers are free to impose lesser service requirements.

Recovery of Retirement Plan Overpayments

The bill includes several provisions aimed at reducing the claw-back of overpayments from retirement plans to retirees to help ensure that the fixed income of retirees is not diminished.  Plan fiduciaries would have more latitude to decide whether to recoup inadvertent overpayments made to retirees from qualified plans.  Further, plan fiduciaries would be prohibited from recouping overpayments that are at least three years old and made due to the plan fiduciary’s error.  If a fiduciary did attempt to recoup an overpayment, the fiduciary could not seek interest on the overpayment, and the beneficiary could challenge the classification of amounts as “overpayments” under the plan’s claims procedures.  Certain overpayments protected by the new rule would be classified as eligible rollover distributions.

Reduction in Excise Tax on Certain Accumulations

SECURE 2.0 would reduce the penalty for failure to take required minimum distributions from a qualified plan from 50% to 25%.  The reduction in excise tax would be effective for tax years beginning after December 31, 2022.

Although we do not know exactly which provisions of SECURE 2.0 will be reflected in the Senate version, the Retirement Savings and Security Act of 2021 is expected to form the basis of the Senate’s bill.   Between the Senate’s current draft and this SECURE 2.0, significant changes to retirement plans are on the horizon.

We are available to help plan administrators understand the legislation as it progresses through Congress.  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.

NoteThe original version of this article was based on the bill as originally passed in the House on March 29.  On March 30, the bill was sent to the Senate.  The March 30 version of the bill included different effective dates with respect to certain of the provisions of the bill described herein.  Effective as of April 13, 2022, this article has been updated to provide for the March 30 effective dates. 

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.

If the U.S. Department of Labor’s Notice of Proposed Information Collection Request, issued on April 15, 2024, becomes final, fiduciary retirement plan committees may be asked to evaluate the important question of whether the plan should voluntarily submit missing participant data to the DOL before filing the next Form 5500.  The DOL is seeking comments on the proposal by June 17, 2024.

This proposal is intended to implement Section 303 of The SECURE 2.0 Act of 2022, which adds Section 523 of ERISA and charges the U.S. Department of Labor with responsibility for establishing a “Retirement Savings Lost and Found” database by December 29, 2024.  The purpose of the database is to help connect participants and beneficiaries who are entitled to benefits with the plan administrator so they can make a claim.

The DOL has encountered several stumbling blocks with the establishment of the Retirement Savings Lost and Found.  Significantly, the DOL thought they would be able to obtain the participant data from the Form 8955-SSA that is filed with the IRS, which provides the information to the Social Security Administration (SSA).

When separated vested participants later file claims for Social Security Benefits, the SSA lets those participants know they “may be entitled to a benefit” from the XYZ plan.  It is these Form 8955-SSA that have created many headaches for employers over the years who have long-ago paid-out participants coming out of the woodwork believing they may still have a retirement plan benefit.  So it may be with a sigh of relief for fiduciaries to learn the IRS has refused to provide the DOL with the Form 8955-SSA data to be used to populate the Retirement Savings Lost and Found, citing concerns related to the confidentiality of tax information under Section 6103 of the Internal Revenue Code.

With this impediment, the DOL pivoted and concluded it instead needed to seek the voluntary disclosure of information in order to meet its 2-year deadline for establishing the Retirement Savings Lost and Found.  Fiduciaries may find value in having access to a tool that can connect participants and beneficiaries to their plan benefits and conclude the disclosure is in their best interests.  However, there are several critical countervailing considerations.

First, the scope of the information requested goes well beyond what was reflected in SECURE 2.0.  For example, the data request solicits information “dating back to the date a covered plan became subject to ERISA . . . or as far back as possible, if shorter.”  Coincidentally, ERISA is celebrating its 50th birthday this year on September 2, 1974.  Do you have 50 years of missing participant data in your files?  Do you want to tell the DOL that you do not?

Further, SECURE 2.0 contemplated the submission of only the participant’s name and taxpayer identification number to the DOL.  Yet the notice requests the submission of the participant’s name, date of birth, mailing address, email address, telephone number, and taxpayer identification number.  Fiduciaries would need to carefully weigh whether they are comfortable providing a government oversight body with this indicative data, including contact information.  The request also asks for the prior plan names, prior administrators, and prior sponsors, which would be a headache for businesses involved in a lot of mergers and acquisitions.

But wait, there is more.  The DOL also seeks information about whether any participants are over their normal retirement age and unresponsive about their benefits or whose contact information may not be accurate.  This could highlight potential 401(a)(9) minimum required distribution questions and potential vulnerabilities in fiduciary missing participant procedures.  The notice began by noting that missing participants often are the result of “inadequate recordkeeping practices, ineffective processes for communicating with such participants and beneficiaries, and faulty procedures for searching” for these individuals.

Second, the notice leaves the DOL’s cybersecurity measures to your imagination, simply noting that “multiple security measures will be in place” to protect the data provided.  What are those security measures?  Has the DOL conducted a risk assessment related to the transmission and storage of participant data, for example?  The DOL’s own Cybersecurity Program Best Practices publication may serve as a guide to fiduciaries in evaluating whether the security measures are sufficient.  There also may be contractual provisions with recordkeeper or other plan service providers that restrict the disclosure of participant information.

Third, the DOL did not establish a fiduciary safe harbor or any protections in the event the information the fiduciary volunteers is ultimately compromised, incomplete, or incorrect.  For example, what happens if the Social Security Number the Plan has on file is 999-999-9999 or the date of birth is 1-1-1900?  What happens if the data the fiduciary provides highlights that the participant has not received required minimum distributions?  Will the voluntary submission lead to a missing participant or a more extensive investigation?

Time will tell.  Importantly, the DOL notes that it has the authority to investigate and collect information under other sections of ERISA and to verify the identities of those accessing the database.  So, if this voluntary avenue proves unsuccessful, the DOL may pivot again to using its enforcement authority to mandate the submission of missing participant data.

For now, plan fiduciaries should keep an eye on the notice and consider voicing their feedback, positive or negative, to the DOL.  Once finalized, fiduciary committee agendas may reflect this important question.

The Jackson Lewis Employee Benefits Practice Group members can assist if you have questions or need assistance.  Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work.

Thanks to SECURE Act 2.0, newly established 401(k) and 403(b) plans must now have an automatic enrollment.  The SECURE Act 2.0 was passed in December 2022 and made sweeping changes to retirement plan regulations. We discuss many of those changes in our SECURE Act 2.0 blog series

Plans with an automatic enrollment feature immediately enroll employees in the employer-sponsored plan once employees satisfy eligibility requirements.  401(k) and 403(b) plans established after December 29, 2022, must have an automatic enrollment feature. The Internal Revenue Service released Notice 2024-02 to clarify when a plan is “established” for purposes of determining whether the plan must have an automatic enrollment feature.  The IRS is accepting public comments related to Notice 2024-02 through April 22, 2024. 

The plan’s adoption date determines whether it is subject to mandatory automatic enrollment. A plan adopted before December 29, 2022, but not effective until after December 29, 2022, is not subject to mandatory automatic enrollment. For example, a 401(k) plan adopted on October 3, 2022, but not effective until January 1, 2023, does not have to have automatic enrollment. 

Suppose two plans, both of which were adopted before December 29, 2022, are merged to create a new ongoing plan with an effective date after December 29, 2022. In that case, the new ongoing plan is not subject to mandatory automatic enrollment. Similarly, a plan that is a spin-off of a plan that was established before December 29, 2022, is not treated as being established after December 29, 2022, and is not subject to mandatory automatic enrollment unless the spun-off plan is maintained or sponsored by an employer that did not maintain or sponsor the plan from which the spin-off plan was spun-off.

Employers that maintain or sponsor newly established 401(k) and 403(b) plans subject to mandatory automatic enrollment must establish the plan in a way that satisfies the requirements listed in Code Section 414A. Very generally,

  • Employees must be enrolled in the plan immediately upon satisfying the eligibility requirements.
  • In the first year of participation, employees are treated as electing to defer a minimum of 3% but not more than 10% of their compensation. The plan sponsor must decide the default deferral percentage and apply it uniformly to all participants.
  • In the years following the first year of participation, participants’ deferral percentage must increase by 1% each year, up to a maximum of 10% (for plan years ending before January 1, 2025) or 15% (for plan years on or after January 1, 2025).
  • Employees may make an affirmative election to change their deferral rate at the frequency allowed under the terms of the plan.
  • Employers must provide a notice that details an employee’s right to opt out of the plan or elect a different deferral rate and describes the default investment selected for participants if the participant fails to make an investment election.
  • Participants must have a reasonable opportunity to elect to opt out of the plan.
  • Within 90 days of the first deferral made under automatic enrollment, participants must have an opportunity to elect to withdraw all of the deferrals made to the plan, plus any earnings.

We are available to help plan sponsors understand and implement the automatic enrollment requirements under 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.

It’s 2024, which means a new batch of provisions from SECURE Act 2.0 have gone into effect. One of the more significant ones is an increase in the “cashout” limit that a qualified plan can impose to kick former employees with small balances out of their plans.

The cashout limit allows a qualified plan to force a distribution of the accrued benefit of a participant whose account balance is below a certain threshold stated in the Internal Revenue Code. You don’t need the participant to make an election or otherwise consent to the distribution; you just have to give them a reasonable period to make an election as to how they want to receive the benefit. If they don’t respond, the plan ships out the benefit. If the value of the forced distribution is over $1,000 and the participant doesn’t elect how to receive the benefit, the distribution must go into an IRA established for the participant – and it isn’t hard for a plan to find a service provider who will be happy to set up those IRAs.

For a while, this limit was $3,500 and was increased to $5,000 by the Taxpayer Relief Act of 1997. The final regulations for this increase became effective October 17, 2000. SECURE Act 2.0 bumps it up to $7,000 as of January 1, 2024. Plans aren’t required to have a force-out provision, but nearly all do, and for good reason.

It’s hard to imagine a scenario where it wouldn’t be smart for a plan to take advantage of the increased limit. Here are the main reasons why:

  • The IRS and DOL have made it known to plan sponsors that it’s important for them to do their best to keep track of terminated employees so those participants can ultimately get the benefits they’ve earned. The more participants you can drop, the fewer participants you have to worry about losing.
  • Plans with 100 or more participants (generally, it’s 100; the rules are a little more complex than that) with account balances at the start of the plan year must be audited by an independent CPA firm. While I’m one of the first people who will tell you that good auditors provide value and can catch a lot of operational errors before they snowball into bigger problems, they aren’t cheap. Sponsors on the borderline of needing an audit usually want to avoid the cost if they can, so removing more account balances might get the plan under the limit.
  • For bigger plans that are more likely to be the target of a class action lawsuit, removing participants can reduce the leverage that a participant class can have, even if the claims aren’t all that strong. Once a class action is filed, it’s largely a numbers game.
  • If the plan’s third-party administrator charges a fee based on the number of participants, reducing the plan’s headcount naturally reduces that fee.
  • Distributing the balance of a participant who isn’t 100% vested allows the non-vested amounts to be moved into the plan’s forfeiture account, and those amounts can pay plan expenses, offset contributions, or be reallocated to other employees.
  • For ESOPs (sorry, I had to get in something specific to ESOPs), forcing out a participant’s balance earlier can help control the plan’s repurchase liability, assuming that the value of the stock will increase. It’s generally less expensive to buy out the stock earlier. Plus, if shares are forfeited, they can be allocated to other employees, and having enough shares to allocate to current employees can become more of a struggle as an ESOP matures.

Recent guidance extended the required amendment adoption date to December 31, 2026, for many SECURE 2.0 provisions, including this increase to the cashout threshold. Plan sponsors wanting to use the higher threshold may do so while waiting to adopt an amendment. Those inclined to increase their cashout level should discuss the change process with their third-party administrators before taking any action themselves.

The Jackson Lewis Employee Benefits Practice Group members can assist plan sponsors in understanding and putting the requirements of SECURE 2.0 into practice. 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.

The Internal Revenue Service recently announced its cost-of-living adjustments applicable to dollar limitations on benefits and contributions for retirement plans generally effective for Tax Year 2024 (see IRS Notice 2023-75). Most notably, the limitation on annual salary deferrals into a 401(k) or 403(b) plan will increase to $23,000, and the dollar threshold for highly compensated employees will increase to $155,000. The more significant dollar limits for 2024 are as follows:

401(k)/403(b) Elective Deferral Limit (IRC § 402(g)) The annual limit on an employee’s elective deferrals to a 401(k) or 403(b) plan made through salary reduction.$22,500$23,000
Government/Tax Exempt Deferral Limit (IRC § 457(e)(15)) The annual limit on an employee’s elective deferrals concerning Section 457 deferred compensation plans of state and local governments and tax-exempt organizations.$22,500$23,000
401(k)/403(b)/457 Catch-up Limit (IRC § 414(v)(2)(B)(i)) In addition to the regular limit on elective deferrals described
above, employees over the age of 50 generally can make an additional “catch-up” contribution not to exceed this limit.
Highly Compensated Employee (“HCEs”)  (SECURE 2.0 Sec. 603 – IRC § 414(v)(7)) Catch-up contributions for HCEs earning above this limit in FICA wages for the preceding year MUST be ROTH contributions.   Not Required for Plan Years beginning in 2024$66,000$69,000
Defined Benefit Plan Limit (IRC § 415(b)) The limitation on the annual benefits from a defined benefit plan.$265,000$275,000
Annual Compensation Limit (IRC § 401(a)(17)) The maximum amount of compensation that may be taken into account for benefit calculations and nondiscrimination testing.$330,000 ($490,000 for certain gov’t plans)$345,000 ($505,00 for certain gov’t plans)
Highly Compensated Employee Threshold (IRC § 414(q)) The definition of an HCE includes a compensation threshold for the prior year. A retirement plan’s discrimination testing is based on coverage and benefits for HCEs.$150,000 (for 2024 HCE determination)$155,000 (for 2025 HCE determination)
Highly Compensated Employee (“HCEs”)  (SECURE 2.0 Sec. 603 – IRC § 414(v)(7))    Catch up contributions for HCEs earning above this limit in FICA wages for the preceding year MUST be ROTH contributions.   Not Required for Plan Years beginning in 2024 $145,000
Key Employee Compensation Threshold (IRC § 416) The definition of a key employee includes a compensation threshold. Key employees must be determined for purposes of applying the top-heavy rules. Generally, a plan is top-heavy if the plan benefits of key employees exceed 60% of the aggregate plan benefits of all employees.$215,000$220,000
SEP Minimum Compensation Limit (IRC § 408(k)(2)(C)) The mandatory participation requirements for a simplified
employee pension (SEP) includes this minimum compensation threshold.
SIMPLE Employee Contribution (IRC § 408(p)(2)(E)) The limitation on deferrals to a SIMPLE retirement account.$15,500$16,000
SIMPLE Catch-up Limit (IRC § 414(v)(2)(B)(ii))) The maximum amount of catch-up contributions that individuals
age 50 or over may make to a SIMPLE retirement account or SIMPLE 401(k) plan.
Social Security Taxable Wage Base See the 2024 SS Changes Fact Sheet. This threshold is the maximum amount of earned income on which Social Security taxes may be imposed (6.20% paid by the employee and 6.20% paid by the employer).$160,200$168,600

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