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SECURE 2.0 Act — A Bigger and (in Some Ways) Better Version of the SECURE Act Part II — Changes Coming in 2024
Tuesday, July 25, 2023

The SECURE 2.0 Act of 2022 (SECURE 2.0) was enacted on December 29, 2022, as a component of the Consolidated Appropriations Act of 2023. SECURE 2.0 made sweeping changes to the laws affecting qualified retirement plans and IRAs. Part I of this Client Alert series summarized provisions of SECURE 2.0 that became effective immediately upon enactment or in 2023. This alert focuses on changes in SECURE 2.0 that will become effective in 2024. There are many changes of narrow application that impact plans such as SEPs, SIMPLE plans, and rural electric co-ops, as well as changes to IRAs, that are not addressed in this series.

Action Steps

Employers should become familiar with the changes enacted under SECURE 2.0, although not all changes apply to every plan. In addition, while some changes are mandatory, others are optional and will only apply at the employer’s election. All plans must operate in compliance with the mandatory changes from the date they become effective. Therefore, employers should work closely with recordkeepers, consultants, and legal counsel to ensure timely operational compliance with the SECURE 2.0 changes and to fully inform plan participants regarding such changes.

Changes Effective in 2024 (references are to the applicable sections of SECURE 2.0)

Student Loan Repayments Treated as Elective Deferrals for Employer Matching Contributions (Section 110)

Employers can make matching contributions under a 401(k) plan, a 403(b) plan, or a 457(b) plan with respect to participants’ “qualified student loan payments.” A qualified student loan payment is broadly defined to include payment of any indebtedness incurred by the employee solely to pay the qualified higher education expenses of the employee. For nondiscrimination testing purposes, employees who receive matching contributions on student loan repayments may be tested separately. Effective for contributions made for plan years beginning after December 31, 2023.

Withdrawals for Certain Emergency Expenses (Section 115)

A plan may permit a withdrawal of up to $1,000 per year for unforeseeable or immediate financial needs related to personal or family emergency expenses. Such distributions are exempt from the 10% early distribution penalty. The distribution may be repaid to the plan within three years. No further distributions may be allowed pursuant to this provision during the three-year repayment term unless the repayment occurs. Effective for distributions made after December 31, 2023.

Starter 401(k) Plan for Employers with No Retirement Plan (Section 121)

Employers who do not sponsor any retirement plan may elect to offer a deferral-only 401(k) plan or a safe harbor deferral-only 403(b) plan. Employees would generally be default-enrolled at a deferral rate of 3% to 15%. The limit on annual deferrals would be the same as the annual limits for IRA contributions, which for 2023 is $6,500, with an additional $1,000 catch-up contribution beginning at age 50. Effective for plan years beginning after December 31, 2023.

Emergency Savings Accounts Linked to Individual Account Plans (Section 127)

A plan sponsor may provide to non-highly compensated employees an emergency savings account (ESA) as a part of their defined contribution plan. The ESA must be funded with Roth after-tax contributions. Such contributions are treated as elective deferrals for matching purposes. Participants may be automatically enrolled at a rate of no more than 3% of compensation. Participant contributions are capped at $2,500, indexed for inflation after 2024 (or a lower amount set by the employer). Participants must be allowed to take at least one withdrawal per month, and no distribution fees can apply to the first four withdrawals each plan year. ESAs may be invested in cash, interest-bearing deposit accounts, and principal preservation accounts. Effective for plan years beginning after December 31, 2023.

Retirement Savings Lost and Found (Section 303)

The Department of Labor (DOL) is directed to establish an online searchable lost-and-found database by December 29, 2024, to collect information on benefits owed to missing, lost, or nonresponsive participants. The database will enable participants to search for plan contact information, likely akin to online state lost property databases. Plan administrators will be required to provide information to the DOL in accordance with regulations to be prescribed by the DOL.

Increase Dollar Limit for Mandatory Cashouts (Section 304)

Under current law, employers may immediately distribute, without the participant’s consent, and directly roll over former employees’ retirement accounts into an IRA, provided the account balance does not exceed $5,000. SECURE 2.0 increases this limit to $7,000 for distributions after December 31, 2023.

Application of Top-Heavy Rules to Defined Contribution Plans Covering Excludable Employees (Section 310)

Under current law, a top-heavy plan must provide participants with a minimum nonelective contribution of 3% of compensation. Other discrimination tests applicable to 401(k) plans allow the otherwise excludable employees (i.e., those under age 21 or who have less than one year of service) to be tested separately, increasing the likelihood of passing the nondiscrimination tests. This was intended to encourage plan sponsors to permit employees to defer earlier than such minimum age and service conditions. However, separate testing is not currently available for top-heavy testing purposes and, consequently, if a plan covers excludable employees, a larger number of participants would be eligible for the minimum 3% contribution if the plan is top heavy. Effective for plan years beginning after December 31, 2023, separate testing can be used for top-heavy purposes for plans covering otherwise excludable employees.

Penalty-Free Withdrawal for Cases of Domestic Abuse (Section 314)

A qualified retirement plan may permit up to the lesser of (a) $10,000 (indexed for inflation) or (b) 50% of a participant’s vested account to be withdrawn by a participant within one year of the date such participant was a victim of abuse by a spouse or domestic partner. The plan may rely on a participant’s self-certification, and the 10% early withdrawal penalty does not apply to such distributions. The distributions may be recontributed to the plan or another eligible retirement plan within three years of distribution. Effective for distributions after December 31, 2023.

Amendments to Increase Benefit Accruals for Preceding Plan Year (Section 316)

Under current law, plan amendments to an existing plan generally must be adopted by the last day of the plan year in which the amendment is effective, precluding any amendments that may be beneficial to participants. Effective for plan years beginning after December 31, 2023, discretionary amendments that increase benefits once the plan year ends may be adopted by the due date of the employer’s tax return, including extensions.

Clarification of Substantially Equal Periodic Payment Rule (Section 323)

Under current law, there is an exception to the 10% early distribution penalty tax for substantially equal periodic payments made over the account owner’s life expectancy. SECURE 2.0 clarifies that this exception continues to apply in the case of a rollover of the account, an exchange of an annuity providing the payments, or an annuity that satisfies the required minimum distribution (RMD) rules. Effective for transfers, rollovers, and exchanges after December 31, 2023, and for annuity distributions on or after the date of enactment.

Roth Plan Distribution Rules (Section 325)

Under current law, RMDs are not required to be made from Roth IRAs prior to the death of the IRA owner but are required for Roth 401(k) accounts. SECURE 2.0 extends this pre-death RMD exemption to 401(k) Roth accounts effective for taxable years beginning after December 31, 2023. However, it does not apply to RMDs that are required with respect to years beginning before January 1, 2024, but are actually paid on or after such date.

Surviving Spouse Election to Be Treated as Employee (Section 327)

Under current law, a sole designated spousal beneficiary may elect to treat an IRA of a deceased owner as his or her own for purposes of RMDs. SECURE 2.0 allows a similar election to a surviving spouse as sole beneficiary of a deceased employee under an employer-sponsored qualified plan, effective for calendar years beginning after December 31, 2023.

SIMPLE Retirement Accounts May Be Replaced with Safe Harbor 401(k) During a Plan Year (Section 332)

Current law prohibits mid-year replacement of a SIMPLE IRA plan with a 401(k) plan. Further, penalty-free rollovers to a 401(k) plan can take place only after a SIMPLE IRA has been in place for at least two years. Effective for plan years beginning after December 31, 2023, SECURE 2.0 permits an employer to elect to replace a SIMPLE IRA with a safe harbor 401(k) plan at any time during a plan year. The two-year waiting period for penalty-free rollover to a 401(k) or 403(b) plan is also waived.

Information Needed for Financial Options Risk Mitigation Act (Section 342)

SECURE 2.0 requires pension plan administrators to give participants and retirees information to compare lifetime benefits offered under the plan to a lump-sum payment, and to provide such information at least 90 days before the lump-sum payment becomes available. The information must include, among other items, an explanation of how the lump sum was calculated, the ramifications of accepting a lump sum, details about the election period, and how to follow up with questions. The Secretary of Labor is directed to issue regulations implementing this provision by December 29, 2023, to be effective not later than one year after issuance of a final rule.

Defined Benefit Annual Funding Notices (Section 343)

For plan years beginning after December 31, 2023, the annual funding notice filed by a defined benefit plan with the Pension Benefit Guaranty Corporation must include additional information. This includes financial information for the two preceding years; a statement of the funding level for the current and two preceding years; and a statement of the number of participants who are (i) retired or separated and receiving benefits, (ii) retired or separated and entitled to future benefits, and (iii) active during the two preceding years (in addition to the already required current plan year).

Safe Harbor for Corrections of Employee Elective Deferral Failures (Section 350)

The Employee Plans Compliance Resolution System currently provides a safe harbor method for the correction of automatic enrollment failures for plans with automatic enrollment and automatic escalation features. This safe harbor is set to expire December 31, 2023. SECURE 2.0 creates a new penalty-free safe harbor for the correction of reasonable administrative errors in implementing the automatic enrollment and/or escalation features. The correction must be made within nine and one-half months of the end of the plan year in which the error occurs or, if earlier, the last day of the month following the month in which the participant notifies the plan sponsor of the error. A corrective contribution is not required for missed deferrals, but the sponsor must contribute any missed matching contributions plus earnings. This is available for 401(k), 403(b), and 457(b) plans and is effective for errors for which the last day of the correction period noted above occurs after December 31, 2023.

Hardship Withdrawal Rules for 403(b) Plans (Section 602)

Current law allows hardship distributions to be made under 401(k) plans from more contribution sources than are allowed under 403(b) plans. SECURE 2.0 conforms the hardship distribution rules for 403(b) and 401(k) plans. Effective for plan years beginning after December 31, 2023, a 403(b) plan may allow hardship distributions from qualified nonelective contributions, qualified matching contributions, and earnings on these contributions and, further, is not required to have as a condition of a hardship distribution that a participant first receive all available loans.

Catch-Up Contributions Treated as Roth for Higher-Income Participants (Section 603)

Under current law, all deferrals under 401(k), 403(b), and governmental 457(b) plans, whether regular or catch-up, may be made on a pretax or Roth after-tax basis. Effective for taxable years beginning after December 31, 2023, all catch-up contributions to any of these plans must be made on a Roth after-tax basis for participants whose prior-year compensation exceeds $145,000, as indexed for inflation after 2024.


As noted in Part I of this Client Alert series, plan amendments to conform the terms of a qualified plan to the requirements of SECURE 2.0 are not required until the end of the 2025 plan year (2027 for governmental plans and collectively bargained plans). However, plans must be in operational compliance with all mandatory provisions of SECURE 2.0 (as well as the SECURE Act and other recent legislation) from the effective date of the applicable provisions to maintain tax-qualified status. Employers will also need to carefully coordinate with their recordkeepers and advisors to determine whether and when to implement the many optional provisions of SECURE 2.0. Practical constraints may come into play too, as some optional features may not be available on your plan provider’s platform until a later date.

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