It's Official: SECURE 2.0 Enacted into Law

Capping off months of anticipation and hard work, the SECURE 2.0 Act of 2022 is now law, thanks to President Biden signing the legislation Dec. 29 after it was flown down to him while on vacation in St. Croix, U.S. Virgin Islands.

The final SECURE 2.0 legislation[i] was included in Division T of the Consolidated Appropriations Act, 2023 (H.R. 2617, as amended). The U.S. Senate approved the bill on Dec. 22 by a vote of 68-29, followed by the House of Representatives on Dec. 23, by a near party-line vote of 225-201, with nine Republicans voting in support.

Provisions with Immediate Effective Dates

Plan advisors, administrators and sponsors should take note that Dec. 29, 2022, will now serve as the date of enactment (DOE), where several provisions become effective immediately, while others become effective in 2023 or later years.

Among the provisions that are either retroactive, or that have effective dates on the DOE or begin at the start of the new year include[ii]:

Coverage and Savings

• Section 102. Modification of credit for small employer pension plan startup costs; effective for tax years beginning after Dec. 31, 2022.
• Section 106. Multiple employer 403(b) plans; effective for plan years beginning after Dec. 31, 2022.
• Section 111. Application of credit for small employer pension plan startup costs to employers which join an existing plan; effective retroactively for tax years beginning after Dec. 31, 2019.
• Section 112. Military spouse retirement plan eligibility credit for small employers; effective for tax years beginning after DOE.
• Section 113. Small immediate financial incentives for contributing to a plan; effective for plan years beginning after DOE.
• Section 118. Permit employers of domestic employees (e.g., nannies) to provide retirement benefits for such employees under a Simplified Employee Pension (SEP); effective for tax years beginning after DOE.
• Section 119. Elimination of compensation-based limit for participants who are non-highly compensated employees and participate in a rural electric cooperative retirement plan; effective for limitation years ending after DOE.
• Section 128. Permit 403(b) custodial accounts to participate in group trusts with other tax-preferred savings plans and IRAs; effective after DOE.

Income Preservation

• Section 201. Remove required minimum distribution barriers of life annuities; effective for calendar years ending after DOE.
• Section 202. Among other clarifications, repeal the 25% limit and allow up to $200,000 (indexed) to be used from an account balance to purchase a qualifying longevity annuity contract (QLAC); effective for contracts purchased or received in an exchange on or after the DOE; the provision also clarifies that free-look periods are permitted up to 90 days with respect to contracts purchased or received in an exchange on or after July 2, 2014.
• Section 204. Eliminate penalty on partial annuitization by permitting account owners to elect to aggregate distributions from both portions of their account for purposes of determining minimum distributions; effective on DOE.

Simplification and Clarification

• Section 301. New rules addressing application of recovery of retirement plan overpayments; effective on DOE (the changes also outline how plan fiduciaries may proceed with respect to determinations made prior to the DOE).
• Section 302. Reduction in excise tax on certain accumulations (i.e., failure to take RMDs) in qualified retirement plans; effective for tax years beginning after DOE.
• Section 306. Eliminate the “first day of the month” requirement for governmental section 457(b) plans; effective for tax years beginning after DOE.
• Section 311. Repayment of qualified birth or adoption distribution limited to 3 years; effective for distributions made after the DOE and retroactively to the three-year period beginning on the day after the date on which such distribution was received.
• Section 312. Employer may rely on employee certifying that deemed hardship distribution conditions are met; effective for plan years beginning after DOE.
• Section 313. Individual retirement plan statute of limitations for excise tax on excess contributions and certain accumulations; effective on DOE.
• Section 317. Retroactive first year elective deferrals for sole proprietors; effective for plan years beginning after DOE.
• Section 320. Elimination of unnecessary plan notification requirements related to unenrolled participants; effective for plan years beginning after Dec. 31, 2022.
• Section 322. Clarification of tax treatment of IRA involved in a prohibited transaction; effective for tax years beginning after DOE.
• Section 326. Exception to penalty on early distributions from qualified plans for individuals with a terminal illness; effective for distributions made after DOE.
• Section 331. Special rules for use of retirement funds in connection with qualified federally declared disasters; effective for disasters occurring on or after Jan. 26, 2021.
• Section 333. Elimination of additional tax on corrective distributions of excess contributions; effective for any determination of taxes, interest or penalties which is made on or after DOE, without regard to whether the act (or failure to act) upon which the determination is based occurred before the DOE.
• Section 337. Modification of RMD rules for special needs trust; effective for calendar years beginning after the DOE.
• Section 345. Clarifies that plans filing under a Group of Plans need only to submit an audit opinion if they have 100 participants or more; effective on the DOE.
• Section 348. Clarifies the application of the Code and ERISA’s rules, prohibiting the backloading of benefit accruals, as they relate to hybrid plans that credit variable interest; effective for plan years beginning after DOE.
• Section 349. Termination of variable rate premium indexing; effective on the DOE.

Revenue Provisions

• Section 601. Allows SIMPLE and SEP Roth IRAs; effective for tax years beginning after Dec. 31, 2022.
• Section 604. Allows DC plans to provide participants with the option of receiving matching contributions on a Roth basis; effective on DOE.
• Section 606. Enhancing retiree health benefits in pension plans by extending sunset date and permitting limited transfers to pay retiree health and life insurance benefits; effective for transfers made on or after DOE.

Upcoming NAPA Webcast

To learn more about what’s in the new SECURE 2.0 Act, register now for a special webcast on Thursday, Jan. 26, 2023, at 2:00 p.m., ET, where ARA CEO Brian Graff and Chief Government Affairs Officer Will Hansen will discuss and analyze the effects major provisions will have on plan design, administration and operations. Register today.

In addition, keep an eye out for our SECURE 2.0 Resource Page, which will feature links to the legislation and related legislative documents, our news coverage and analysis, and various recommended resources and commentary.

[i] The wide-ranging legislation draws from several bipartisan bills, including the House’s Securing a Strong Retirement Act; and the Senate’s Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg (RISE & SHINE) Act and Enhancing American Retirement Now (EARN) Act. Additionally, the Retirement Security and Savings Act put forward by the bipartisan duo of now-retired Sen. Rob Portman (R-OH) and Sen. Ben Cardin (D-MD) also had a strong influence on the final legislation.

[ii] Note that this is not a complete list of provisions with immediate effective dates, including provisions making various technical and administrative conforming changes, as well as retirement provisions relating to U.S. Tax Court judges.