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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.

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.

RISE and SHINE v. SECURE 2.0

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.

WHAT’S NEXT? 

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.

Note:  The 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.

The countdown clock is running. The stadium lights are on, and the clock is ticking toward extra time.  Plan sponsors must amend many qualified retirement plans by December 31, 2026.  Just like in a World Cup knockout match, waiting invites costly mistakes.

Which Rule Changes Are Shifting the Field of Play?

Since 2019, three major laws have implemented both optional and mandatory changes to retirement plans.  

  • SECURE Act
    In 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act raised the RMD age, required long-term part-time employee eligibility, and replaced “stretch IRAs” with a 10-year payout rule.
    Learn more: The SECURE Act, at Last
  • CARES Act
    In 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act added several provisions to help employers and participants during the COVID-19 pandemic, including coronavirus-related distributions, expanded loan limits, and a waiver of required minimum distributions (RMDs).
    Learn more: The CARES Act Effect on Retirement Plans
  • SECURE 2.0 Act
    At the end of 2022, SECURE 2.0 made yet another round of mandatory and optional changes, including expanded automatic enrollment, Roth catch-up contributions, and another increase to the required minimum distribution (RMD) age. 
    Learn more: Our 10-part series on SECURE 2.0.

Which Parts of Your Playbook Need Updating?

Common amendment areas include:

  • Coronavirus-related distributions and loan provisions
  • Waiver or treatment of 2020 RMDs
  • Increased RMD age (now up to 73, with future increases)
  • Long-term part-time employee eligibility rules
  • Automatic enrollment and escalation features
  • Updated required distribution timing rules
  • Cash-out thresholds for small balances
  • Roth catch-up provisions

Avoid a Stoppage-Time Scramble

No one wants to have to score in stoppage time under pressure with the entire stadium watching.  Starting early gives you:

  • Time to confirm operational compliance
  • Flexibility to correct errors
  • Better coordination with recordkeepers
  • Stronger governance and documentation

Delays often expose gaps between operations and written terms.

Your Compliance Game Plan

1. Take Inventory – your full roster

Identify all plans and prior amendments.

2. Review Operations – like reviewing match footage

Confirm how CARES, SECURE, and SECURE 2.0 changes were handled in practice.  Consult employee communications and Summaries of Material Modifications published since 2019.

3. Compare to Plan Language – close the gaps between strategy and execution

Spot differences between what you did and what your document says.

4. Draft Amendments – ensure every player is in the right position

Align the plan with the required and optional provisions you implemented.

5. Execute Before the Deadline – before the referee blows the final whistle

Complete approvals and adoptions on or before December 31, 2026.

Final Whistle

The IRS amendment deadline is approaching faster than a shot on goal.  Many plan sponsors are already “playing by the new rules” but have not yet updated their documents. IRS Notice 2024-02 provides that, in general, the deadline to amend a qualified plan (that is not a governmental plan within the meaning of section 414(d) of the Code or an applicable collectively bargained plan) is December 31, 2026.  This is the final match deadline with no extensions.

Jackson Lewis attorneys help employers align plan operations with required amendments while minimizing disruption, acting as your experienced coaching staff through every stage of the tournament.  We bring practical, business-focused guidance to complex compliance projects.

Now is the Time to Take Control of your Match

Contact your regular Jackson Lewis Employee Benefits and Executive Compensation practice group attorney to discuss your amendment strategy before the clock runs out.

Each April, National Employee Benefits Day provides an opportunity to reflect on the rapidly shifting landscape of employer‑sponsored benefits.

From implementing new tax laws, a flurry of executive orders with implications for both retirement and welfare plans, updated agency guidance, increased litigation and enforcement activity, and updates to longstanding requirements, plan fiduciaries have a great deal to manage as they work to stay current.  Layered onto these federal developments is a growing patchwork of state and local regulation. Jurisdictions continue to expand mandated benefits, including insurance coverage requirements and state retirement savings programs. For plan sponsors operating across multiple jurisdictions, coordinating compliance has become not only an administrative challenge, but a strategic one.

Here is a sampling of what we are seeing this year:

  1. PBM Reform and Pharmacy Benefit Fiduciary Oversight

In the PBM space, we have seen new federal legislation, sustained state‑level activity, and heightened ERISA fiduciary scrutiny.  In February 2026, Congress enacted PBM transparency and rebate pass‑through provisions as part of the Consolidated Appropriations Act, 2026, requiring 100% rebate pass‑through and expanded reporting obligations for PBMs serving employer-sponsored plans (effective on a delayed basis). These changes build on years of state‑level PBM regulation addressing transparency, pricing practices, and audit rights.

At the same time, the Department of Labor (DOL) has proposed rules that would subject PBMs to ERISA compensation disclosure requirements, reinforcing the expectation that plan fiduciaries understand—and actively monitor—PBM compensation structures and potential conflicts.

The takeaway: PBM arrangements are no longer viewed as purely operational matters; they now sit squarely within fiduciary governance.

  1. SECURE 2.0: Implementation and Compliance Risk

Retirement plans remain a central focus in 2026, as many provisions of SECURE 2.0 have shifted from long‑term planning considerations to immediate operational realities.  Mandatory automatic enrollment for newly established plans, Roth‑only catch‑up contributions for certain higher‑paid employees, and increased catch‑up limits for participants ages 60–63 are prompting plan sponsors to reassess whether their retirement offerings remain aligned with both workforce expectations and compliance obligations.

  1. 401(k) Plans and Alternative Investment

The White House has consistently signaled interest in expanding access to alternative investments—such as private equity, private credit, and other non‑traditional assets—within defined contribution retirement plans.  On March 30, 2026, the Department of Labor took the next step by issuing proposed regulations, the intent of which is to “increase potential retirement investment options” while reaffirming that ERISA’s fiduciary standards remain unchanged. Notably, the proposed regulations do not create a safe harbor for alternative investments, nor do they declare any specific alternative asset class to be per se prudent. Instead, the regulations reiterate that fiduciaries must evaluate any investments like these using traditional ERISA principles of prudence and loyalty. That said, a door that may once have seemed closed in the 401(k) space now appears to be opening.

  1. ERISA Litigation Expands into Voluntary Benefits

ERISA litigation continues to expand in both scope and creativity. Of particular note in 2026 is a growing wave of lawsuits targeting voluntary employee benefits, including accident, critical illness, hospital indemnity, and other supplemental insurance programs.  As we’ve previously noted, these claims have the potential to reshape traditional plan‑broker relationships and increase fiduciary scrutiny in an area that historically attracted relatively little litigation risk.

While the ultimate outcomes remain uncertain, the trend underscores the importance of governance, documentation, and service provider oversight, even for voluntary benefit programs.

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This April, we wish to remind you that, although the considerations involved in sponsoring employee benefit plans are complex and continually evolving, plan sponsors and fiduciaries do not have to navigate them alone.

Please contact a member of the Jackson Lewis Employee Benefits Practice Group if you would like assistance addressing these issues or planning for the year ahead.  Subscribe to the Benefits Law Advisor Blog.

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 2026 (see IRS Notice 2025-67). Most notably, the limitation on annual salary deferrals into a 401(k) or 403(b) plan will increase to $24,500, and the dollar threshold for highly compensated employees will increase to $160,000.  The more significant dollar limits for 2026 are as follows:

LIMIT20252026
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.$23,500$24,500
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.$23,500$24,500
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. (See special rule below for those aged 60–63)		$7,500$8,000
SECURE 2.0 Super Catch-up Age 60-63 (IRC  § 414(v)(2)(E)(i)) Other than Plans described in 401(k)(11) or 408(p).$11,250$11,250
Defined Contribution Plan Limit (IRC § 415(c)) The limitation for annual contributions to a defined contribution
plan (such as a 401(k) plan or profit sharing plan).		$70,000$72,000
Defined Benefit Plan Limit (IRC § 415(b)) The limitation on the annual benefits from a defined benefit plan.$280,000$290,000
Annual Compensation Limit (IRC § 401(a)(17)) The maximum amount of compensation that may be taken into account for benefit calculations and nondiscrimination testing.$350,000 ($520,000 for certain gov’t plans)$360,000 ($535,000 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.$160,000 in the 2025 plan year (for 2026 HCE determination)$160,000 in the 2026 plan year (for 2027 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 prior year MUST be ROTH contributions.  Required for Plan Years beginning in 2026$145,000 (optional for 2025 HCE determination) – see IRS Notice 2023-62$150,000 in the 2025 plan year (for 2026 HCE determination)
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.$230,000$235,000
SEP Minimum Compensation Limit (IRC § 408(k)(2)(C)) The mandatory participation requirements for a simplified employee pension (SEP) includes this minimum compensation threshold.$750$800
SIMPLE Employee Contribution (IRC § 408(p)(2)(E)) The limitation on deferrals to a SIMPLE retirement account.$16,500$17,000
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. (See special rule below for those aged 60-63)$3,500$4,000
SECURE 2.0 Super Catch-up Age 60-63 (IRC  § 414(v)(2)(E)(ii)) The maximum amount of catch-up contributions that individuals aged 60–63 may make to a SIMPLE retirement account or SIMPLE 401(k) plan.$5,250$5,250
Social Security Taxable Wage Base See the Social Security Contribution and Benefit Base site. 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).$176,100$184,500

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. Subscribe to the Benefits Law Advisor Blog.

Takeaways

  • Generally, plan sponsors should be prepared to implement the Roth catch-up rule for taxable years beginning after December 31, 2025 (i.e., January 1, 2026, for calendar year plans).  This will require coordination with ERISA counsel, the company’s payroll provider, and the plan’s recordkeeper and third-party administrator.
  • Be prepared to discover mistakes and correct them quickly.

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Article

On September 16, 2025, the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) issued Final Regulations (Treasury Decision 10033) under Section 603 of the SECURE 2.0 Act. Section 603, as enacted, generally requires that catch-up-eligible participants whose prior-year FICA wages exceeded $145,000 (as indexed) make all catch-up contributions as designated Roth contributions for taxable years beginning after December 31, 2023.  However, in Notice 2023-62, the IRS provided an administrative transition period for calendar years 2024 and 2025, during which plans could continue to accept pre-tax catch-up contributions without violating the statute. The Final Regulations confirm this transition relief remains in effect only through December 31, 2025, and clarify that full compliance with the mandatory Roth catch-up rule is required for taxable years beginning after December 31, 2025 (i.e., January 1, 2026, for calendar-year plans). The Final Regulations generally apply to taxable years beginning after December 31, 2026, with 2026 administration permitted under a reasonable, good-faith interpretation. Finally, note that the regulations also provide delayed applicability for collectively bargained plans.

This article focuses on the impact of the Final Regulations on non-collectively bargained and non-governmental 401(k) plans.

Mandatory Roth Catch-Up Rule

The Roth catch-up rule requires that any catch-up eligible participant (i.e., any participant who is or will reach age 50 by the end of the taxable year) whose FICA wages for the preceding calendar year exceed $145,000 (as indexed) must designate all catch-up contributions as Roth contributions.  All catch-up eligible participants must be allowed to designate their catch-up contributions as Roth, but the Final Regulations make clear that a plan cannot require that all catch-up eligible participants designate catch-up contributions as Roth if they do not exceed the wage threshold.  If a plan does not have a designated Roth program, participants subject to the Roth catch-up rule may not make catch-up contributions.

Determining Who is Subject to the Roth Catch-Up Rule

The Final Regulations clarify that a plan determines whether a participant satisfies the $145,000 (as indexed) threshold by using the FICA wages reflected in Box 3 of the participant’s Form W-2 for the prior year from the participant’s common law employer.  In certain situations, FICA wages from multiple employers may be aggregated.  For example, in the calendar year of an asset purchase, a successor employer may aggregate the wages of a predecessor employer under the successor-predecessor rules.

Administrative Issues Implementing the Roth Catch-Up Rule

Plans may provide for deemed elections with respect to catch-up contributions. Participants who are subject to the Roth catch-up rule, and have elected to make catch-up contributions, are “deemed” to have elected to designate those contributions as Roth.  To implement deemed elections, participants must have an effective opportunity to decide not to make catch-up contributions.  The deemed election may apply either when pre-tax contributions reach the 402(g) limit or when combined pre-tax and Roth contributions reach that limit, which is helpful for plans that provide the spillover method.  The deemed election must end within a reasonable time after the participant is no longer subject to the Roth catch-up rule, or when an amended Form W-2 shows that the participant does not satisfy the threshold.

Correction Methods for Mandatory Roth Catch-Up Failures

Mistakes are bound to happen as plans work through the complexities of implementing the Roth catch-up rule.  The Final Regulations provide two correction methods plans may use to correct Roth catch-up failures.  As a condition of using the correction methods, plans must have adopted practices and procedures reasonably designed to ensure compliance with the mandatory Roth catch-up rule and must provide for deemed elections. The same correction method must be used for similarly situated participants, and the method used cannot be based on a participant’s investment gains. 

The regulations discuss two correction methods: a W-2 correction method and an In-Plan-Roth Rollover method.  Both options have unique challenges and advantages.  Plan sponsors should consult their ERISA counsel to discuss their best options. 

The regulations also allow for no correction in certain circumstances.  Correction is not required if the amount of the pre-tax catch-up contribution that should have been designated as a Roth contribution does not exceed $250 (not including earnings or losses). Or if the failure is due to an amended Form W-2, reflecting that the participant was subject to the Roth catch-up rule, is filed or provided after the correction deadline.

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.  Subscribe to the Benefits Law Advisor Blog here.