A discussion draft of a bipartisan bill containing technical corrections (TC) to certain provisions of the SECURE 2.0 Act of 2022 (SECURE 2.0) was jointly released by the House and Senate on December 6, 2023. The draft, currently cited as the ‘‘SECURE 2.0 Technical Corrections Act of 2023,’’ includes technical amendments, clerical amendments, and clarifications of the law to reflect congressional intent and is not intended to change any underlying policies.
Among the changes the draft bill incorporates are the changes lawmakers acknowledged were needed to SECURE 2.0 in a joint letter to the Internal Revenue Service (IRS) and the U.S. Department of Treasury on May 23, 2023, from the Chairs and Ranking Members of the House Committee on Ways and Means and the Senate Committee on Finance.
Two expected key corrections impacting employer-sponsored defined benefit (DB) and defined contribution (DC) plans to fix known errors are summarized below, with changes italicized.
Age for required minimum distributions (RMD) (section 107 of SECURE 2.0).
SECURE 2.0 raised the RMD age after December 31, 2022. As acknowledged in the May 23, 2023, joint letter, Congress intended to increase the RMD age from age 72 to age 73, for individuals who turn 72 after December 31, 2022, and who turn 73 before January 1, 2033, and to increase the RMD age from 73 to age 75 for individuals who turn 73 after December 31, 2032.
However, as written in SECURE 2.0, the provision for the increase from age 73 to age 75 could be read to apply to individuals who turn age 74 after December 31, 2032, rather than age 73 as Congress intended. The TC would amend the age after December 31, 2032, that determines the applicable RMD age. The RMD rules after incorporating the SECURE 2.0 TC are shown below.
| Effective for individuals attaining | RMD age | |
|---|---|---|
| Age 70½ before 1/1/2020 | 70 ½ | Prior to the SECURE Act* |
| Age 70½ after 12/31/2019 and age 72 before 1/1/2023 | 72 | Change with the SECURE Act* |
| Age 73 before 1/1/2033** | 73 | Change with SECURE 2.0 and TC |
| Age 73 (corrected from age 74) after 12/31/2032 | 75 | Change with SECURE 2.0 and TC |
* The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act).
** The TC strikes the wording “age 72 after December 31, 2022, and” that appeared at the beginning of this provision, presumably as being unnecessary because the SECURE 2.0 provision to raise the RMD age to 73 applies to RMDs made after December 31, 2022, with respect to individuals who attain age 72 after such date.
Roth catch-up contributions for participants whose wages exceed $145,000 (section 603 of SECURE 2.0).
Plan sponsors of 401(k), 403(b), and governmental 457(b) plans that permit catch-up contributions may only accept catch-up contributions designated as Roth contributions for eligible participants, i.e., those participants who have reached age 50 by the end of the taxable year and whose Federal Insurance Contributions Act (FICA) wages exceed $145,000 in the prior calendar year, indexed for inflation.
With this change to the catch-up contribution requirements, SECURE 2.0 inadvertently eliminated the provision in the Internal Revenue Code (IRC) that allows catch-up contributions (whether pretax or Roth) for all participants for tax years after December 31, 2023. As acknowledged in the May 23, 2023, joint letter, Congress did not intend to disallow catch-up contributions (whether pretax or Roth) beginning in 2024. The TC would correct this drafting error and reinstate the ability to make catch-up contributions. We also note that, within Notice 2023-62, the IRS delayed the implementation of the Roth catch-up contribution requirement until January 1, 2026, for participants with prior-year FICA wages exceeding $145,000 (indexed for inflation).
Another key change relates to whether the mandatory automatic enrollment provisions apply to multiemployer plans.Mandatory automatic enrollment in 401(k) and 403(b) plans (section 101 of SECURE 2.0).
SECURE 2.0 exempts plans established before December 29, 2022, the enactment of SECURE 2.0, from mandatory automatic enrollment and automatic escalation. However, this exemption does not apply to an employer that adopts a preexisting “plan maintained by more than one employer.” It was unclear as to whether this phrase included both multiple employer plans (as defined in IRC Section 413(c)) and multiemployer collectively bargaining plans (as defined in IRC Section 414(f)). The TC clarifies that the exemption does not apply to multiple employer plans. Therefore, a multiemployer 401(k) plan established before December 29, 2022, would be exempt from this requirement. However, a multiemployer DC plan established before December 29, 2022, that adds a 401(k) component after December 29, 2022, or a new multiemployer 401(k) plan established after December 29, 2022, would likely be subject to the mandatory automatic enrollment requirements.
Effective date
If these changes become law as drafted, they will apply as if they were included in SECURE 2.0.
The discussion draft was released to the public for review and comment. It is not clear to which bill these amendments would be attached as it makes its way through Congress.
Please contact your Milliman consultant for how these provisions may impact your plan(s).