The House and Senate discussion draft of technical corrections to SECURE 2.0 would fix erroneous statutory language in SECURE 2.0. While the release of a draft bill is promising, the timing for enactment remains uncertain given all that is on Congress’ agenda.
Background
SECURE 2.0 was signed into law on Dec. 29, 2022, as part of the Consolidated Appropriations Act, 2023. SECURE 2.0 continued retirement plan reforms made by the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE 1.0). SECURE 2.0 included many changes to the retirement plan rules, but it quickly was apparent after enactment that several provisions were unclear or contained errors. On May 23, 2023, leaders of the Senate Finance Committee and the House Committee on Ways and Means wrote a letter to the secretary of the treasury and the commissioner of the IRS identifying the errors and stating their intent to introduce legislation to make necessary technical corrections.
On Dec. 6, 2023, in conjunction with the leaders of the House and Senate committees with jurisdiction over retirement issues, a draft of a SECURE 2.0 technical corrections bill was released.
The draft legislation addresses the following:
- Required minimum distribution (RMD). SECURE 2.0 increases the starting age at which RMDs begin from age 72 to age 73 for individuals who attain age 72 after Dec. 31, 2022, and attain age 73 before Jan. 1, 2033. The starting age increases to age 75 for individuals who attain age 74 after Dec. 31, 2032. This language caused confusion for individuals born in 1959 because it resulted in two different required beginning dates. The technical corrections clarify that the required age for RMDs is raised to 73 starting in 2023 and 75 starting in 2033.
- Catch-up contributions. SECURE 2.0 requires retirement plan catch-up contributions made by individuals earning more than $145,000 in wages and who are age 50 and older to be made on an after-tax Roth basis. However, as initially drafted, SECURE 2.0 could be read to disallow catch-up contributions entirely in 2024. The draft legislation corrects this error by making it clear that catch-up contributions are allowed in 2024.
- Small-business retirement plan startup credit. SECURE 2.0 increases the three-year small-business retirement plan startup credit (generally capped at $5,000) from 50% to 100% of administrative costs for employers with up to 50 employees. SECURE 2.0 also provides an additional credit, which is phased out for employers with 51 to 100 employees, equal to a percentage (beginning at 100% for the first two years and decreasing by 25% each year thereafter for four years) of the amount contributed by the employer to a defined contribution retirement plan, up to a maximum credit of $1,000 per employee. The draft legislation clarifies that this new credit is in addition to the startup credit and not subject to the dollar limitation (generally $5,000) of the startup credit.
Crowe observation
If enacted, the technical corrections would codify the relief provided in Notice 2023-62 with respect to 2024 catch-up contributions and Notice 2024-02 with respect to the small-business retirement plan startup credit.
- SEP and SIMPLE individual retirement plans (IRAs). Section 601 of SECURE 2.0 permits SIMPLE IRA plans and SEP plans to include a Roth IRA. The draft legislation clarifies that Roth contributions under these arrangements will not count against an employee’s contribution limit to a separate Roth IRA.
- Employer matching contributions based on student loan payments. For plan years beginning after Dec. 31, 2023, employers may choose to make matching contributions on qualified student loan payments under 401(k) plans, 403(b) plans, government 457(b) plans, and SIMPLE IRAs. Qualified student loan payments, when aggregated with any employee elective deferrals, are limited to the annual 402(g) elective deferral limit. The draft legislation clarifies that qualified student loan payments, when aggregated with any employee elective deferrals, may not exceed the 402(g) limit after application of the Section 414(v) catch-up contribution rules for individuals age 50 or older.
- Starter retirement plans. SECURE 2.0 permits employers that do not currently sponsor a retirement plan to establish a new type of deferral-only retirement plan referred to as a starter 401(k) or 403(b) plan. The annual deferral limit is $6,000. The draft legislation replaces the $6,000 limit with the IRA contribution limit in Section 219(b).
- Catch-up contributions for individuals age 60-63. For tax years beginning after Dec. 31, 2024, SECURE 2.0 provides individuals who are age 60-63 with a higher catch-up limit equal to the greater of $10,000 or 150% of the “2024” catch-up contribution for other participants, incorrectly referencing 2024. The draft legislation corrects this error by changing the 2024 reference to 2025.
Looking ahead
In addition to the corrections discussed earlier, the draft technical corrections also clarify several other provisions enacted by SECURE 2.0, including provisions relating to retirement savings lost and found and recovery of retirement plan overpayments. Both the House and Senate currently are accepting comments on the draft. Given the significant bipartisan support for the technical corrections, those interested in providing comments should do so quickly to ensure those comments are considered when a bill is introduced.
