Part II | The SECURE Act 2.0: What You Need to Know

Jan 26, 2023

Below is part two of our five-part blog series on the Act. Read part one here. Be sure to bookmark!

The SECURE 2.0 Act of 2022 (the Act) was signed into law by President Biden on December 29, 2022 as part of the Consolidated Appropriations Act of 2023. The bipartisan legislation is a conglomeration of one House and two Senate bills that have been floating around Congress throughout 2022, if not earlier. Designed to expand the nation’s retirement plan coverage, with its 90-plus provisions, the Act is the most substantial piece of retirement legislation in many years.

Most of the Act’s provisions are intended to enhance coverage and participation in 401(k) and similar-type plans, such as a 403(b), particularly among small businesses that currently do not offer a retirement plan and industries that employ large swaths of part-time workers. There are some other provisions that apply to cash balance defined benefit plans and many others that impact all types of retirement plans.

A Deeper Dive: Provisions that affect retirement plan distributions
Provision Effective Date Summary
Required Beginning Date Ages January 1, 2023 The initial age for required minimum distributions (RMDs) increases to age 73 beginning January 1, 2023 for those who turn 72 after December 31, 2022. It increases to age 75 beginning January 1, 2033 for those who turn 74 after December 31, 2032.
No Pre-Death Required Minimum Distributions for Roth Tax years beginning after December 31, 2023 Pre-death required minimum distributions are not required for employer retirement plan Roth accounts.
Reduced RMD-Related Excise Taxes Date of enactment The excise tax imposed on participants who fail to take an RMD is decreased from 50% to 25%, or to 10% if corrected within a two-year window.
Spousal Beneficiary RMDs Date of enactment A spousal beneficiary of an employer-provided plan benefit may elect to be treated as an employee for purposes of RMDs and, if the sole designated beneficiary of the participant’s account, have distributions determined under the uniform life table.
Withdrawals for Certain Emergency Expenses Withdrawals made after December 31, 2023 Certain withdrawals or distributions from some eligible retirement plans (e.g., 401(k) and 403(b) plans) for emergency expenses will not be subject to the 10% tax on early distributions. One emergency-expense withdrawal of up to a maximum of $1,000 is permissible each year; the participant must be given the opportunity to repay the withdrawal within the following three years. Additional conditions and requirements apply.
Penalty-Free Withdrawals for Cases of Domestic Abuse Distributions made after December 31, 2023 Retirement plan distributions made to a participant who is otherwise eligible for a distribution and is terminally ill (certified by a physician) will not be subject to the 10% tax on early distributions. The distribution may be repaid under rules similar to those for qualified birth or adoption withdrawals.
Permanent Rules for Relief for Qualified Federal Disasters Disasters occurring on or after January 26, 2021 Previously, only ad hoc relief was provided for retirement plan distributions and loans made in connection with certain federally declared disasters. For disasters occurring on or after January 26, 2021, there is permanent relief permitting up to $22,000 in qualified disaster recovery distributions that are not subject to the 10% tax on early distributions. These distributions are eligible to be taken into income over three years and may be repaid to the plan. Additionally, the maximum plan loan limit may be increased up to $100,000 or 100% of the participant’s account balance, if less, for any individual who experiences a qualified disaster, and any loan repayment period may be extended by one year.
403(b) Hardships Distributions 2024 403(b) hardship distributions may include qualified non-elective and qualified matching contributions in addition to salary deferrals, plus earnings thereon. Furthermore, participants need not take available loans prior to taking a hardship distribution.
Small Benefit Cash-Outs and Automatic Portability Distributions after December 31, 2023 The threshold for a cash-out and automatic transfer to a default IRA is increased to $7,000. Furthermore, retirement plans and recordkeepers will be able to offer automatic portability for amounts transferred to default IRAs provided the IRA may be automatically transferred into the plan of the employee's new employer without the employee needing to take any action.
Fixing the RMD and Lifetime Income Conundrums Calendar years ending after the date of enactment The required minimum distribution rules eliminate perceived barriers to the availability of certain common lifetime annuity features, such as period certain guarantees and guaranteed annual increases, with respect to commercial annuities issued in connection with an eligible retirement plan.
Expanded Qualified Longevity Annuity Contracts (QLACs) Date of enactment For QLACs purchased after the date of enactment, the 25% account limit is repealed and the permissible dollar amount is increased to $200,000 and indexed, as well as permitting QLACs to include certain other features.
Employee Hardship SelfCertification Plan years after the date of enactment Absent actual knowledge to the contrary, plans will be permitted to rely on a participant’s self-certification of eligibility for a hardship withdrawal from a 401(k) or 403(b) plan for the hardship events listed in the regulations, or an unforeseeable emergency distribution from a governmental 457(b) plan. Employers could previously rely on a participant’s self-certification as to the amount necessary to satisfy the hardship, but not the actual hardship event itself.
Participant Disclosure Requirements for Lump-Sum Distribution Windows Pending issue of DOL final regulations Specialized notices will be required (a model will be issued) to participants being offered a temporary lump-sum distribution option under a pension plan. The special notice must be provided at least 90 days before the first date participants could elect a lump sum. Plans will also be required to provide notification of the lump-sum offering to the Pension Benefit Guaranty Corporation and the Department of Labor (DOL).
Repayment of Certain Distributions Date of enactment Repayment of qualified birth or adoption distributions must be completed within three years, or the end of 2025, for any prior distribution.

Next week, in part three of our five-part blog series, we’ll dive into provisions affecting Pooled Employer Plans (PEPs), Multiple Employer Plans (MEPs) and Groups of Plans (GoPs).

Questions or concerns about the new legislation? Contact your financial advisor or BPAS Participant Services.