This article is an excerpt from Dopkins Employee Benefits Newsletter.
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For more information, contact Vincent Pasini CPA at vpasini@dopkins.com.

SECURE Act 2.0 was enacted on December 29, 2022. It contains numerous provisions for employer-sponsored retirement plans that are going into effect soon. Each provision has a different effective date. We have summarized key provisions below.

1. MANDATORY COVERAGE FOR LONG-TERM, PART-TIME EMPLOYEES

The employer of the retirement plan must allow long-term part-time employees to participate in their retirement plans. A long-term, part-time employee is defined as an employee who works at least 500 hours a year for two consecutive years. Plans are required to adopt this provision for plan years beginning in 2025 and must take into consideration the hours worked in 2023 and 2024.

The employer must inform the employee that they are eligible to enroll in the plan but is not required to automatically enroll the employee. Additionally, the employer is not required to provide employer contributions if the employee does not work over 1,000 hours. Long-term, part-time employees do not include employees who are under a collective bargaining agreement, nonresident aliens who receive no earned income, or certain students. If the part-time employee does not work over 1,000 hours, they can be also excluded from nondiscrimination testing.

2. CONTRIBUTIONS TO A RETIREMENT PLAN

There were various contribution provisions added, including:

CATCHUP CONTRIBUTIONS

Effective for the 2024 plan year, if a participant earns $145,000 or more of FICA wages in the preceding year, catchup contributions can only be made to the participant’s Roth account. If the plan does not allow Roth contributions, catchup contributions cannot be made. Plan sponsors should note that this is a new threshold that may require additional configuration in their payroll software.

AUTO-ENROLLMENT

Any new retirement plans established after January 1, 2025 must include an auto enrollment feature.

MATCHING CONTRIBUTIONS

Effective for the 2024 plan year, employers may adopt a provision where an employer can make a matching contribution on student loan payments at the same rate as if the employer was matching employee deferrals.

CONTRIBUTION CHARACTERIZATION

Effective for the 2023 plan year, participants may elect to characterize employer contributions as Roth contributions.

3. DISTRIBUTIONS FROM A RETIREMENT PLAN

There were various withdrawal provisions added that are effective for the 2024 plan year:

TERMINATED PARTICIPANTS

Plans may force out terminated participants with a balance of less than $7,000 (as of 2023 the limit is $5,000).

EMERGENCIES

A participant may withdraw up to $1,000 for an emergency, as defined by SECURE Act 2.0.

DISASTER RELIEF

A participant may withdraw up to $22,000 for disaster relief if the participant lives in a federal disaster area, has suffered an economic loss due to the disaster, and the withdrawal is made within 180 days of the disaster.

DOMESTIC ABUSE

Within one year of an incident of domestic abuse, a participant may withdraw the lesser of $10,000 or 50% of their vested balance.

TERMINAL ILLNESS

A participant may withdraw their vested balance if the participant has a terminal illness. A doctor must certify that the participant has a terminal illness and has 84 months or fewer to live.

TAKEAWAY
We recommend that Plan sponsors work with their attorneys and third party administrators to ensure all required provisions are adopted and to consider which optional provisions make sense for their plan.

About the Author

Vincent Pasini CPA

Vincent Pasini holds extensive experience in contract design, management and review/audit of financial statements.