Passed as part of the Consolidated Appropriations Act of 2023, the SECURE Act 2.0 facilitates important retirement plan reforms. Many of the changes are designed to make it easier for workers to access and participate in employer sponsored retirement plans. Concurrently, there are other provisions designed to encourage employers to offer plans with automatic enrollment and escalation features. Since there are a bevy of changes which will be implemented over the coming years, it is essential to become familiar with the ones effective for 2024. (You can view the changes effective for 2023 in this article.) This includes penalty free distributions for emergency personal expenses and domestic abuse victims, matching student loan payments, and automatic enrollment failure correction. To help clients, prospects, and others, JLK Rosenberger has provided a summary of the key details below.
Changes Effective in 2024
- Starter 401(k) Plans – Employers that do not currently sponsor a retirement plan can now offer a starter 401(k) or safe harbor 401(k) plan to employees. Rules require eligible employees to be automatically enrolled at a deferral rate between 3%-15% with an opt-out option. The annual limit on deferrals is $6,500 for 2023 with additional amounts available for catch up contributions for participants 50 or older.
- Emergency Personal Expenses – A new feature of retirement plans is the provision for distributions to cover emergency personal expenses. The change permits a retirement plan participant, including those in an IRA, to take up to $1,000 in distributions without being subject to a 10% penalty. The distribution must be repaid within the following three years and no additional emergency distributions may be taken until repayment is made. An emergency personal expense is defined as an expense that arises due to an unforeseeable or immediate personal or family emergency.
- Domestic Abuse Victims – Another new feature is the opportunity for domestic abuse victims to take penalty free withdrawals from eligible retirement plans. The maximum amount is limited to the lesser of $10,000 or 50% of the account balance during the one-year period during which an individual is a victim of domestic abuse. The distribution must be repaid within a three-year period.
- Matching Student Loan Payments – A popular change is the opportunity for employers to make matching contributions to a defined contribution plan based on qualified student loan payments. This is true even if the employee does not directly contribute to the plan. The loan payment must cover eligible higher education expenses such as tuition and books incurred by the participant, spouse, or a dependent. Participants are allowed to self-verify and plans are not required to conduct further verification.
- Surviving Spouse Election – The surviving spouse of a participant that dies prior to taking required minimum distributions (RMDs) may now elect to be treated as the employee for purpose of RMDs. If the spouse is younger in age this could delay the timeline in which RMDs must be taken.
- Catch Up Contributions Limited to Roth Contributions – Starting in 2024, there is a new rule that permits catch up contributions to 401(k) and 403(b) plans be made only on a Roth basis. In other words, these contributions are not made on a pre-tax basis. This applies to employees with compensation over $145,000 in the preceding year.
- Automatic Enrollment Failure Corrections – Under current regulations, the special correction rule for automatic enrollment and escalation failures is limited. However, starting in 2024, there is a grace period in which these mistakes can be corrected. Plans have 9 ½ months after the plan year end in which the mistake was made to remedy the issue.
We’re Here to Help
The SECURE Act 2.0 calls for several important changes to employer sponsored retirement plans. Not only are employers encouraged to offer new plans, but workers are given additional flexibility in participation and access to benefits. If you have questions about the information outlined above or need assistance with your upcoming benefit plan audit, JLK Rosenberger can help. For additional information call 949-860-9902 or click here to contact us. We look forward to speaking with you soon.