When Does SECURE Act 2.0 Take Effect? A Timeline for Retirement Plan Providers

In December 2022, Congress passed the SECURE Act 2.0, which builds on retirement savings regulations set forth by the original SECURE Act of 2019. Written to expand coverage and increase retirement savings for millions of Americans, SECURE Act 2.0 introduces some major changes to retirement plans nationwide. Since certain sections of SECURE Act 2.0 are already in effect—and even more will go into effect soon—retirement plan providers must act swiftly to ensure compliance. 

In this post, we’ll cover what SECURE Act 2.0 is, why it was enacted, and a timeline detailing the provisions that go into effect by the end of 2023. 

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What is SECURE Act 2.0?

SECURE stands for Setting Every Community Up for Retirement Enhancement. Now in its second iteration, SECURE Act 2.0 is designed to help employers provide easier and more affordable retirement plans for their employees. 

While there are dozens of new rules and regulations to consider, here is a snapshot of provisions most pertinent to 401(k) and 403(b) plan providers:

• Automatic enrollment and contribution increases: All new 401(k) and 403(b) plans adopted after December 29, 2022 (with a few exceptions that we will discuss later in this post) will be required to automatically enroll participants at a rate of at least 3% of their pay but not more than 10%. They will also be required to automatically increase participants’ contributions 1% every year thereafter until they reach at least 10% but not more than 15%. 
• Increased catch-up contributions: The catch-up contribution limit for 401(k) and 403(b) plans will increase from $6,500 to $7,500 for Americans aged 50 and up. Since nearly half of Americans over the age of 55 have no retirement savings, this provision will help older employees contribute more to their plans as they near retirement. 
• Roth 401(k) expansion: The availability of Roth 401(k) plans will expand to all employers, regardless of size. With its embedded tax benefits, this provision will help small businesses, which have been historically less likely to sponsor a retirement plan, to offer a plan to their employees.
• Emergency withdrawals: To cover unforeseeable or immediate financial needs, plan participants can now withdraw up to $1,000 from their retirement plan without having to pay a 10% tax. With easier access to their retirement savings, Americans will be better able to weather a financial emergency.
• Saver's Credit: Saver's Credit, the tax break for low- and moderate-income workers, will be fixed at 50%. The qualifying income for eligible savers will also increase from $41,000 to $41,500.

Why was the SECURE Act 2.0 enacted?

According to a 2021 report by the National Institute on Retirement Security, 

• More than two-thirds of Americans say the U.S. is facing a retirement crisis.
• More than half are concerned about achieving financial security in retirement.
• Nearly two-thirds expect to work past the normal retirement age for financial security. 

While some Americans are finding ways to save, the nation’s collective fear of not having enough money to retire is valid: the average retirement savings in the United States is only $65,000. 

To address these concerns and unburden the American worker, SECURE 2.0 is creating easier, more accessible opportunities to save for retirement. 

Let’s take a look at some of the provisions that go into effect at the end of the year. 

A SECURE Act 2.0 Timeline: The provisions going into effect by the end of 2023

While many of the rules and regulations set forth by SECURE 2.0 took effect on the day the legislation was signed, deadlines for others are quickly approaching. It’s a race against time to stay compliant, and retirement plan providers would be smart to start preparing now.

Here’s a complete breakdown of every SECURE 2.0 provision that will take effect by January 1, 2024. 

Section 108: Indexing IRA catch-up limit

Section 108 increases the limit on IRA contributions by $1,000 (not indexed) for individuals aged 50 and older. Section 108 is effective for taxable years beginning after December 31, 2023.

Section 110: Treatment of student loan payments as elective deferrals for purposes of matching contributions

Section 110 allows employers to treat qualified student loan payments (QSLPs) as elective deferrals for the purposes of matching contributions. This means that employers can make matching contributions to employees' retirement accounts based on the amount of money that employees pay toward their student loans.

Section 110 is effective for contributions made for plan years beginning after December 31, 2023.

Section 115: Withdrawals for certain emergency expenses

Section 115 allows participants in retirement plans to make penalty-free withdrawals for emergency expenses. To be eligible, the expense must be an unforeseen or immediate financial need relating to necessary personal or family emergency expenses. Participants can withdraw up to $1,000 per year from their retirement plan for a qualified emergency expense. The withdrawal must be repaid within three years. If the withdrawal is not repaid within three years, the participant will be subject to a 10% penalty tax.

Section 115 is effective for distributions made after December 31, 2023.

Section 116: Allow additional nonelective contributions to SIMPLE plans

Section 116 says that employers with SIMPLE plans must contribute 2% of employee compensation or 3% of employee elective deferral contributions. Employers are allowed to make additional contributions up to 10% of compensation or $5,000, whichever is less.

Section 116 is effective for taxable years beginning after December 31, 2023.

Section 117: Contribution limit for SIMPLE plans

Under current law, the annual contribution limit for a SIMPLE IRA is $14,000. For employers with 25 or fewer employees, Section 117 increases the contribution limit by 10% in the first year of implementation. Employers with 26 to 100 employees can offer higher contribution limits if they provide a 4% matching contribution or a 3% employer contribution. 

Section 117 is effective for taxable years beginning after December 31, 2023. 

Section 121: Starter 401(k) plans for employers with no retirement plan

Section 121 allows employers without a retirement plan to offer a starter 401(k) plan. Employees are automatically enrolled at 3 to 15% of their salary, with a $6,000 annual contribution limit and a $1,000 catch-up contribution for those over 50. 

Section 121 is effective for plan years beginning after December 31, 2023.

Section 126: Special rules for certain distributions from long-term qualified tuition programs to Roth IRAs

Section 126 allows 529 plan holders to transfer up to $35,000 to a Roth IRA, tax- and penalty-free, if the 529 account has been open for more than 15 years. 

Section 126 is effective with respect to distributions after December 31, 2023.

Section 304: Updating dollar limit for mandatory distributions

Under current law, employers can transfer former employees' retirement accounts from a workplace retirement plan into an IRA if the balance is between $1,000 and $5,000. Section 304 increases this limit to $7,000. 

Section 304 is effective for distributions made after December 31, 2023.

Section 310: Application of top-heavy rules to defined contribution plans covering excludable employees

Under current law, qualified retirement plans must pass the top-heavy test. Section 310 allows employers to perform the top-heavy test separately on non-excludable and excludable employees. This removes the financial incentive to exclude employees from the 401(k) plan, increasing retirement plan coverage to more workers.

Section 310 is effective for plan years beginning after December 31, 2023.

Section 314: Penalty-free withdrawal from retirement plans for individual cases of domestic abuse

Section 314 allows domestic abuse survivors to withdraw up to $10,000 from their retirement plans without penalty. Participants can repay the money over three years, and they will be refunded for taxes paid on any repaid amounts.

Section 314 is effective for distributions made after December 31, 2023.

Section 315: Reform of family attribution rule

Section 315 updates two stock attribution rules. The first update removes the inequity between spouses in both community property and separate property states. The second update modifies the attribution of stock between parents and minor children.

Section 315 is effective for plan years beginning after December 31, 2023.

Section 316: Amendments to increase benefit accruals under plan for previous plan year allowed until employer tax return due date

Under current law, employers can amend retirement plans only in the year in which the plan was effected. Section 316 allows employers to amend retirement plans by the due date of their tax return.

Section 316 is effective for plan years beginning after December 31, 2023.

Section 323: Clarification of substantially equal periodic payment rule

Section 323 ensures that the 10% early withdrawal penalty does not apply to substantially equal periodic payments (SEPPs) from retirement accounts, even if the account is rolled over, exchanged, or converted to an annuity.

Section 323 is effective after December 31, 2023.

Section 325: Roth plan distribution rules

Under current law, required minimum distributions (RMDs) are not required for Roth IRAs until after the owner dies. However, RMDs are required for Roth accounts in employer retirement plans, such as 401(k) plans, while the owner is still alive. Section 325 eliminates the RMD requirement for Roth accounts in employer plans. This means that owners of Roth accounts in employer plans will no longer have to take RMDs while they are still alive.

Section 325 is effective for taxable years beginning after December 31, 2023.

Section 327: Surviving spouse election to be treated as employee

Section 327 allows a surviving spouse to elect to be treated as the deceased employee for required minimum distribution (RMD) purposes. This means that the surviving spouse can take RMDs based on the deceased employee's age, rather than their own. 

Section 327 is effective for calendar years beginning after December 31, 2023.

Section 332: Employers allowed to replace SIMPLE retirement accounts with safe harbor 401(k) plans during a year

Section 332 allows an employer to replace a SIMPLE IRA plan with a SIMPLE 401(k) plan or other 401(k) plan that requires mandatory employer contributions.

Section 332 is effective for plan years beginning after December 31, 2023.

Section 343: Defined benefit annual funding notices

Section 343 aims to define benefit pension plan funding issues more clearly on a plan’s annual funding notice. 

Section 343 is effective for plan years beginning after December 31, 2023.

Section 350: Safe harbor for corrections of employee elective deferral failures

Section 350 extends the safe harbor for correcting errors in automatic enrollment and automatic escalation features in retirement plans. Employers have nine and a half months after the end of the plan year to correct errors without penalty.

Section 350 is effective for errors after December 31, 2023.

Section 602: Hardship withdrawal rules for 403(b) plans

Under current law, 401(k) and 403(b) plans have different hardship distribution rules. 401(k) plans allow for all amounts to be distributed, while 403(b) plans only allow for employee contributions to be distributed. Section 602 conforms the 403(b) rules to the 401(k) rules.

Section 602 is effective for plan years beginning after December 31, 2023.

Section 603: Elective deferrals generally limited to regular contribution limit

Under current law, catch-up contributions can be made on a pre-tax or Roth basis. Section 603 requires all catch-up contributions to be made on a Roth tax basis, except for employees with compensation of $145,000 or less.

Section 603 is effective for taxable years beginning after December 31, 2023.

Learn what’s required to become compliant today

As you prepare for SECURE Act 2.0 to come into effect, don’t lose sight of the fact that it will take time to prepare to be compliant. 

You can get started today by reading our overview of Section 101, the automatic enrollment and increases clause. In this post, you’ll discover four methods for becoming compliant as well as a recommended timeline for fulfilling your obligations. 

In the coming days, we’ll dive into Sections 125 and 603 in greater depth, offering insight into what your obligations are and how you can become compliant before the relevant deadlines. Stay tuned!