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IRS Issues SECURE Act 2.0 Guidance

SECURE Act 2 - Denver CPA

In December 2022, President Biden signed the SECURE 2.0 Retirement Savings Act (Act) into law. Passed as part of the Consolidated Appropriations Act of 2023, it includes over 90 provisions designed to expand access to retirement savings, improve retirement regulations and lower the cost for employers to establish to set up retirement plans. While some provisions became immediately effective, others phased in over a five-year period ending in 2026. Many plan sponsors have been waiting to make changes or updates until guidance was issued. The good news is earlier this year the IRS published Notice 2024-2 which provides guidance on a number of matters including changes to the financial incentives for plan participation, exception to the 10% tax for terminally ill participant distributions, and automatic enrollment error correction procedures. To help clients, prospects, and others, WhippleWood CPAs has provided a summary of the key points below.

  • Financial Incentives for Plan Participation – The Act now allows employers to offer financial incentives to encourage eligible employees to participate in the plan. Unfortunately, several important questions about the type and amount of incentive were unanswered. According to the guidance, the value of the incentives cannot exceed $250, the example of a gift card was given as a potential option, and it may only be offered to employees without a deferral election set up. It was also stated employers can make incentive payments over time to encourage ongoing deferrals rather than a one-time event. Finally, any incentive received will be treated as part of the employee’s taxable gross income subjected to relevant taxes.
  • Early Distribution Penalty for Individuals with Terminal Illness – The Act also introduces a waiver of the 10% penalty for participants with a terminal illness. The new terminal illness distribution can be taken on or after the date on which an employee has been certified as having a terminal illness. Only certifications obtained from a medical doctor that include specific information such as name and contact information for the physician, evidence of examination and presence of illness, and assertion it is reasonable to expect the individual is terminal and will result in death within 84 months will be accepted. Finally, this is an optional change that plan sponsors are not required to adopt.
  • Automatic Enrollment/Escalation Safe Harbor – The Act also makes permanent certain temporary safe harbor corrections previously available under the EPCRS. The change provides a permanent safe harbor for reasonable administrative errors in implementing an automatic enrollment or escalation feature. The guidance clarifies the correction deadline is the earlier of the first payroll date after the nine-and-a-half-month period following the end of the plan year in which the error occurred, or the first payroll date after the last day of the month following an employee notification.
  • Plan Amendment Deadline – The guidance also delays the plan amendment deadlines to provide the additional time plan sponsors may need to comply. A qualified plan must be amended by December 31, 2026, which is one year later than initially allowed. It is important to note that plans are still required to operate in accordance with various provisions by the effective date.

SECURE Act 2.0 also authorized some new features that can be offered in retirement plans. Many retirement plan administrators have delayed making these features available in the plans until they updated plan documents based on IRS guidance. We expect that some of these plan administrators will be offering these features soon now that guidance has been issued. These features include the following:

  • Matching Contributions Based on Employee Student Loan Payments – Employers can make matching contributions based on employee’s student loan payments. Previously, employers could only base matching contributions on employee contributions to the employer plan.
  • Pension-Linked Emergency Savings Account—Employers can include a pension-linked emergency savings account for non-highly compensated employees in their plan.

Contact Us

The recently issued Notice provides important guidance to plan sponsors about the implementation of various SECURE Act 2.0 provisions. Due to the complexity of the updates, it is important to consult with a qualified advisor who can guide you through the process. If you have questions about the information outlined above, or need assistance with your next benefit plan audit, WhippleWood CPAs can help. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.