Employment Law Update

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SECURE 2.0 Act Imposes New Rules on Retirement Plans

The SECURE 2.0 Act, embedded in the spending bill enacted in December 2022, imposes extensive new rules on pension, 401(k) and 403(b) plans. This Legal Alert addresses some of the new rules of primary interest to employers.

1. Required Minimum Distributions (RMDs)

  • The starting age for RMDs increased to age 73 in 2023 and will increase to age 75 in 2033. The original Secure Act in 2019 raised the RMD starting age from 70½ to 72. SECURE 2.0 raises the starting age for RMDs to 73 for individuals turning 72 after December 31, 2022. Beginning in January, 2033 (not a typo), for those turning 74 on or after January 1, 2033, the starting age for RMDs increases to 75.
  • Excise taxes on undistributed RMDs are slashed. Currently, an excise tax of 50% is imposed on the employee for any RMD amount that wasn’t distributed on time. Beginning immediately, the excise tax is reduced to 25%. The excise tax can be further reduced to 10% if the employee meets certain conditions.
  • Beginning in 2024, RMDs will not be required during the participant’s lifetime for distributions from Roth accounts maintained under 401(k) and 403(b) plans.

2. Mandatory Changes

  • Auto-enrollment is required for most new plans. For most 401(k) and 403(b) plans adopted after enactment of SECURE 2.0, automatic enrollment of employees is required starting in 2025 at 3% of compensation and increasing at least 1% annually up to at least 10% of compensation. Auto-enrollment remains optional for existing plans.
  • Catch-up contributions are going up. Starting in 2025, participants between ages 60 and 63 can make catch-up contributions equal to the greater of $10,000 (indexed for inflation) or 150% of the regular catch-up limit. For certain high-paid participants, increased catch-up contributions can only be made on a post-tax basis to a Roth account within the plan.
  • The rules governing plan overpayments to participants are changed. Previously, the law generally required employers to attempt to recover overpaid benefits from participants, even when the overpayment was small and/or not the participant's fault. SECURE 2.0 relaxes the requirements for when attempted recovery of overpayments is required.
  • Part-time employees must be allowed to contribute sooner. Part-time employees who work 500 or more hours for two consecutive years must be allowed to contribute to 401(k) and 403(b) plans, starting in 2025. Under the original SECURE Act, the requirement was three consecutive years.

3. Optional Changes

  • Expanded hardship withdrawals from 401(k) and 403(b) plans. If a plan allows hardship withdrawals, SECURE 2.0 adds a number of new reasons why a withdrawal must be allowed, including personal and family emergencies, domestic abuse, terminal illness and federally-declared disasters. Qualified withdrawals will be exempt from the 10% early withdrawal penalty tax and may be repaid to the plan within three years.
  • Beginning in 2024, employers may be able to make matching contributions to a 401(k) or 403(b) plan based on an employee's student loan repayments.
  • Beginning in 2024, a plan may raise its mandatory cash-out limit from $5,000 to $7,000.

Bottom Line: Employers should consult with benefits counsel to determine which changes under SECURE 2.0 must be and/or could be made to their retirement plans. 

If you have any questions, please contact Theodore P. Stein.

Theodore P. Stein
410-576-4229 • tstein@gfrlaw.com


January 10, 2023




Stein, Theodore P.