For the second time in four years, a Congressional holiday miracle included one of the largest packages of tax law changes for retirement plans and individual retirement savings in history. On December 29, 2022, President Biden signed into law the Consolidated Appropriations Act, 2023, a $1.7 trillion omnibus package that was passed on December 23 and includes the much anticipated "SECURE 2.0" retirement reform legislation. SECURE 2.0 Act of 2022, which builds on the original Setting Every Community Up for Retirement Enhancement Act of 2019 ("SECURE 1.0"), is the end product of three separate retirement bills that have been circulating in Congress for two years. While most of the provisions included in SECURE 2.0 have been under consideration in various forms, retirement plan sponsors have been awaiting final passage to understand the specific changes that will impact their employees and retirees. 

SECURE 2.0 includes approximately 90 separate provisions and impacts virtually all aspects of retirement savings for American workers. Some provisions took effect on January 1, 2023, but most take effect over the next few years. This client alert focuses on the provisions that we believe will be of most interest to retirement plan sponsors, including public and private employers, public pension systems, university systems, and church plans. It is not comprehensive, and there may be other provisions not covered here that will impact plan administration. We will be working with our clients in the coming months to make sure that they are aware of their new legal responsibilities and options under SECURE 2.0. 

Highlights of Secure 2.0 for Plan Sponsors

(More) Changes to Required Minimum Distribution (RMD) Rules

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Provisions to Increase Participation and Savings

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Greater Flexibility for Penalty-Free Withdrawals

Distributions from retirement plans are not permitted until a participant has experienced a distributable event that permits a distribution from that type of plan or account. Distributable events vary depending on the type of plan, but include termination of employment, financial hardship, attainment of age 59 ½, disability, and death. When a distribution is permitted before the attainment of age 59 ½ (e.g., upon a severance from employment or financial hardship), a 10% early withdrawal penalty tax applies to the distribution unless an exception applies. There are a number of listed exceptions to this penalty under current law.

SECURE 2.0 adds several new provisions that allow plan sponsors of defined contribution plans to permit participants the ability to access a portion of their retirement savings while still working, even if they are not otherwise eligible to take a distribution. These distributions are exempt from the 10% early withdrawal penalty tax, and, in most cases, the participants have the opportunity to repay the distribution (and receive a refund on taxes previously paid on the distribution) if certain timing requirements are met. 

Even if a plan does not offer an optional distribution, if a participant who is otherwise eligible for a distribution receives a distribution that qualifies under one of the following provisions, the participant may treat the distribution as qualifying for the favorable tax treatment when completing his or her personal tax return.  

Simplification of Retirement Plan Rules

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Expansion of Roth Contributions

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Action Steps and Amendment Deadlines for Plan Sponsors

The changes outlined above will require all existing plans to make operational changes in order to administer their plans in compliance with mandatory provisions in the law, some of which take effect as early as 2023. In addition, employers and pension systems should carefully consider adopting one or more of the optional provisions to provide employees with new opportunities for savings and flexibility for distributions. This will depend on the needs of each employer's workforce and employee expectations. Once decisions are made, plan sponsors will need to ensure that the plan's service providers and recordkeepers are able to administer the changes by the applicable effective dates. In addition, all plan changes will need to be clearly communicated to participants and plan amendments must be timely adopted. 

The general deadline to adopt plan amendments pursuant to the changes required (or optionally permitted by) SECURE 2.0 is the last day of the first plan year beginning on or after January 1, 2025 (December 31, 2025, for calendar year plans). For governmental plans, the deadline is the last day of the first plan year beginning on or after January 1, 2027 (December 31, 2027, for calendar year plans). However, plans must still operate in accordance with the provisions of SECURE 2.0 as of the applicable effective date.

SECURE 2.0 also conforms the amendment deadline applicable to changes under SECURE 1.0 and the CARES Act, so that all of these deadlines are now, with respect to calendar year plans, December 31, 2025 (December 31, 2027, for governmental plans).

For more information about how SECURE 2.0 might affect your employee benefit plans, please contact Gary Blachman, Audra Ferguson-Allen, Rob Gauss, Lisa Harrison, Lindsay Knowles, Melissa Proffitt, Shalina Schaefer, Kathleen Sheil-Scheidt, Tara Sciscoe, Chris Sears, or the Ice Miller Workplace Solutions attorney with whom you regularly work.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.