CHRIS SHANKLE, CPA, CGMA SVP, Managing Director
(Division T of Consolidated Appropriations Act, 2023)
In December of 2022, Congress passed the Consolidated Appropriations Act, 2023 which contains a large section covering retirement in the U.S. referred to as SECURE 2.0. As a reminder, SECURE 2.0 is seen as building upon or enhancing the Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act). The Act can be broken down into the following summarized component parts:
Expanding Coverage and Increasing Retirement Savings
• Expanding Automatic Enrollment in Retirement Plans – Requires new 401(k) and 403(b) plans to include EACA at 3% (not more than 10%) auto deferral with annual 1% auto increase to 10% (not to exceed 15%). Amounts to default into QDIA. Does not apply to SIMPLE, plans adopted before the effective date, governmental or church plans, plans sponsored by businesses in existence for less than 3 years, or plans maintained by employers with 10 or fewer employees. Effective plan years after December 31, 2024.
Preservation of Income
• Qualifying Longevity Annuity Contracts (QLACs) Made More Attractive – QLACs are designed to begin payment towards the end of individuals’ life expectancy. This helps to safeguard against running out of income later in life. The 25% limit would be removed and spouses would be allowed to share QLACs as joint and survivor annuities. Effective for contracts purchased/received on the date of enactment of the Act.
Simplification and Clarification of Retirement Plan Rules
• Recovery of Retirement Plan Overpayments – Statutorily relieves fiduciaries from seeking inadvertent benefit overpayments, but if they do so the Act puts rules in place (no interest or additional amounts can be sought, if repaid in installments the aggregate cannot exceed the amount of the overpayment, consideration of hardship imposed on the recipient, etc.). Clarifies that failure to obtain repayment does not impact qualified status of plan. Effective with enactment of Act
Revenue Provisions
• Catch Up Contributions Treated as Roth – All catch-up contributions will be subject to Roth treatment (unless employee has compensation equal to or less than $145,000 indexed). Effective taxable years after December 31, 2023.
