IRS Guidance on SECURE Act 2.0 Provisions

The SECURE Act 2.0, signed into law in late 2022, is designed to make retirement savings easier by calling for expanded access to workplace retirement plans, increased saving opportunities, and streamlined administration. The Act includes over 90 provisions that impact operations, accessibility, benefits, and incentives for participants and employers. Given the many changes, the IRS has been busy providing direction and guidance about the implementation process. Earlier this year, the IRS issued Notice 2024-2, which provides information through questions and answers on miscellaneous provisions. This includes the implementation of terminally ill distributions and the Military Spouse Retirement Plan Eligibility Credit. To help clients, prospects, and others, JLK Rosenberger has provided a summary of the key details below.

Terminally Ill Distributions

A terminally ill individual can take a penalty-free distribution to help manage healthcare costs and associated expenses. An employee must furnish sufficient evidence to the plan administrator as required. These distributions may be taken on, or after the date, the employee has been certified by a physician as having a terminal illness. While the 10% penalty does not apply, it’s important to note the distribution total will be added to the individual’s gross income.

There were several updates included in the guidance:

  • Eligible Plan Types – Terminally ill distributions may be made from Section 401(a), defined benefit, Section 403(a), 403(b), or an Individual Retirement Account (IRA). Eligible Deferred Compensation Plans maintained by an employer are not eligible because they are not considered eligible retirement plans.
  • Definition of Terminally Ill – Many are unclear about what constitutes a terminal illness. The guidance clarified it refers to an individual who has been certified by a physician as having an illness or physical condition that is reasonably expected to result in death within 84 months or less.
  • Physician Certification – There have been many questions about what information needs to be included for a certification to be valid. The guidance outlined that a certification must include a statement about the illness and reasonable certainty of death (within 84 months), a description of evidence used to support the diagnosis, name, and contact information of the physician, date of evidence examination, and signature affirming the diagnosis.
  • Distribution Requirement – Many have questioned whether it is required to offer terminally ill distributions. The guidance clarifies it is an optional benefit and is not required. For those who do not offer this benefit, an employee is permitted to treat an otherwise permissible in-service distribution as a terminally ill distribution.
Military Spouse Retirement Plan Eligibility Credit

Section 112 of the Act provides a military spouse retirement plan credit for small employers. This update delivers a business credit to an eligible employer that provides the opportunity for participation and benefits to a military spouse within two months of the date of hire. Eligible small employers are those with no greater than 100 employees who receive at least $5,000 of compensation in the preceding tax year. A military spouse is any person married to a member of the uniformed services serving on active duty. Plan sponsors are permitted to rely upon employee certification, assuming it includes the name, rank, and service branch. The provision became effective December 29, 2022.

There were several updates included in the guidance:

  • Claim Credits Prior to Plan Amendments – There have been several questions about whether the credit can be claimed on contributions made before the plan filed required amendments. The answer is yes and starts later on the date on which plan amendments become effective and the date on which the military spouse began participating. It also includes any of the two succeeding tax years during which the spouse participates in the plan for three years. A military spouse’s 3-year credit period begins from the first date the military spouse participates in any eligible defined employer contribution plan.
  • Claim Credits When Employer Does Not Meet Requirements – There was also confusion about whether an employer can claim the credit for any 3-year period in which the employer does not meet applicable requirements. The answer is no.
We’re Here to Help

The recently released guidance provides important details that plan sponsors must consider when implementing these provisions. Since the guidance details can be complicated, it is essential to consult with a qualified advisor to determine how you will be impacted. If you have questions about the information outlined above or need assistance with your next benefit plan audit, JLK Rosenberger can help. For additional information call 818-334-8645, or click here to contact us. We look forward to speaking with you soon.