Lawmakers release SECURE 2.0 corrections bill for beta testing 

Mature businessman leading project meeting in office conference room
Mature businessman leading project meeting in office conference room

January 12, 2024

A draft bill aims to debug many provisions of the SECURE 2.0 Act of 2022 (Div. T of Pub. L. No. 117-328). All changes would apply as if they had been included in SECURE 2.0. Leaders of congressional committees with retirement policy jurisdiction are seeking public input before formally introducing legislation but haven’t specified any deadline. Bill sponsors are expected to try adding a final measure sometime in 2024 to larger, must-pass legislation. Some provisions in the draft are already addressed by IRS guidance, including recently issued Notice 2024-02.

Draft bill includes high-priority fixes

Legislation as intricate as SECURE 2.0 often includes unintentional errors. Stakeholders began alerting policymakers and federal regulators about potential glitches in the weeks immediately after SECURE 2.0’s enactment. The draft technical corrections would fulfill assurances key House and Senate committee leaders made to Treasury and IRS about planned fixes for the following high-priority issues:

  • Catch-up contributions. The draft would repair an error that inadvertently eliminates all catch-up contributions starting in 2024. IRS has already announced that it will enforce existing catch-up contribution rules in 2024 and future years, making a legislative fix less urgent.
  • Required minimum distributions (RMDs). For individuals who turn 74 after 2032, SECURE 2.0 increases the age that triggers RMDs from 73 to 75. As written, the provision is ambiguous for individuals born in 1959, who will turn both 73 before 2033 (i.e., in 2032) and 74 after 2032 (i.e., in 2033). The draft legislation would clarify that the RMD triggering age for these individuals is 73.
  • Roth contributions to SEP and SIMPLE IRA plans. Starting in 2023, SECURE 2.0 allows employees with simplified employee pension (SEP) plans or individual retirement accounts (IRAs) through a savings incentive match plan for employees of small employers (SIMPLE IRA plan) to make Roth contributions. The draft would clarify that Roth contributions to these arrangements don’t count against an employee’s contribution limit to a separate Roth IRA. While Notice 2024-20 included some guidance on this provision, IRS deferred addressing the Roth IRA contribution limit issue.
  • Small employer start-up credit. SECURE 2.0 creates a new tax credit for small employers that start a defined contribution (DC) plan. The credit is based on an employer’s contributions to employees’ accounts. The draft would clarify that this credit is in addition to the separate three-year credit for the costs to start and administer a new plan (which is consistent with how IRS is already interpreting this provision).

Other notable corrections, clarifications covered in draft

The draft legislation would also address a slew of other SECURE 2.0 provisions, including the following notable corrections and clarifications:

  • Terminal illness distributions. Sponsors can offer terminally ill employees penalty-free distributions beginning on or after Dec. 29, 2022 (SECURE 2.0’s enactment date). However, the act doesn’t indicate that plans can offer these distributions to participants who otherwise haven’t had a distribution event under the plan — unlike similar provisions for emergency expenses and domestic abuse. The draft bill would confirm that distributions for terminal illness satisfy the rules for 401(k), 403(b), and governmental 457(b) plans (but not money purchase plans) and allow participants to self-certify their eligibility. This conflicts with IRS guidance in Notice 2024-02, which provides that a terminally ill employee must be otherwise eligible for a permissible in-service distribution, and plan administrators can’t rely on self-certification.
  • Overpayment recoveries. ERISA plan officials seeking recovery of overpayments must comply with a slate of new participant protections. Many of these protections don’t apply to a participant or beneficiary who is culpable for the overpayment. One provision bars plan officials from seeking recoupment if the first overpayment occurred more than three years before the participant or beneficiary received written notice about the error, except in cases of fraud or misrepresentation. The act provides no guidance on what kinds of participant misconduct constitute fraud or misrepresentation, or how this exception to the notification window relates to the general exception for participant culpability. The bill would remove the exception for fraud or misrepresentation, clarifying that the notification requirement is subject to the general culpability exception.
  • Section 420 transfers. SECURE 2.0 extends defined benefit (DB) plan sponsors’ ability to fund retiree health and life insurance benefits with surplus DB plan assets from the end of 2025 to 2032. The law also relaxes the minimum overfunding requirement for certain de minimis transfers. The bill would confirm that sponsors don’t have to apply de minimis treatment — even if the conditions are otherwise met. The draft would also clarify how the de minimis rule applies to multiyear transfers.
  • Student loan match. For plan years starting after Dec. 31, 2023, DC sponsors can make matching contributions on an employee’s qualified student loan payments (QSLPs), even if the employee isn’t contributing to the plan. The employee’s aggregate loan payments treated as QSLPs plus elective deferrals, if any, during a year can’t exceed the annual limit on elective deferrals under Internal Revenue Code (IRC) Section 402(g). The bill would confirm that employees eligible to make additional catch-up contributions at ages 50 and older could receive a corresponding increase in the QSLP cap.
  • Retirement Savings Lost and Found. The Department of Labor (DOL) has until Dec. 29, 2024, to establish an online database that terminated participants can use to locate their lost retirement benefits. Administrators of retirement plans subject to the vesting standards in ERISA Section 203 (29 USC § 1053) must begin reporting certain information about terminated participants to DOL starting with the 2024 plan year. The draft bill would clarify that the database (and related DOL assistance) will include information for locating designated trustees or issuers of IRAs or annuities, as well as issuers of certain deferred annuity contracts. Reporting by plan administrators would also have to include beneficiaries.
  • Automatic enrollment mandate. Unless an exception applies, 401(k) and 403(b) plans must offer an eligible automatic contribution arrangement (EACA) with automatic escalation and permissible withdrawal features, starting with the 2025 plan year. A broad exception applies to plans established before Dec. 29, 2022. However, this exception isn’t available to an employer that adopts “a plan maintained by more than one employer” after that date, even if that plan existed before Dec. 29, 2022. The draft bill would ensure that this exclusion is limited to adoption of a multiple-employer plan — including a pooled employer plan — and doesn’t inadvertently apply the mandate to an employer that adopts a preexisting multiemployer plan. The draft would also clarify that the initial 10% maximum contribution rate for EACAs applies to 2025 plan years (i.e., the first year nonexempt plans must offer auto-enrollment) instead of 2024 plan years.
  • Higher catch-ups for ages 60–63. Starting in 2025, SECURE 2.0 raises the catch-up limit in the years DC plan participants turn ages 60–63. As originally drafted, the increased amount would be the greater of $10,000 or 150% of the 2024 catch-up contribution limit for other participants. The draft bill would instead use the 2025 catch-up limit (i.e., the applicable limit when this provision takes effect).
  • Roth catch-ups for 457(b) plans. The bill would clarify how SECURE 2.0’s Roth catch-up mandate applies to 457(b) plans. (IRS has already delayed enforcement of this mandate until 2026.)

Fix to let 403(b) plans invest in CITs omitted

The draft bill wouldn’t amend relevant federal securities laws to let 403(b) plans invest in collective investment trusts (CITs). Before SECURE 2.0, neither the IRC nor federal securities laws allowed 403(b) custodial accounts to offer CITs. The new law amended the IRC to provide this flexibility, but Congress wasn’t able to work out the needed securities law changes. Bipartisan legislation (HR 3063) to make those changes cleared a House committee in 2023. Supporters hope to attach the bill — perhaps along with SECURE 2.0 corrections legislation — to a larger package that could clear Congress this year.

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