IRS issues guidance on 12 SECURE 2.0 retirement plan changes

The IRS has released guidance (Notice 2024-2) in the form of questions and answers on 12 of the new provisions added by the Setting Every Community Up for Retirement Enhancement Act of 2022 (SECURE 2.0), which was enacted on Dec. 29, 2022 (see our previous story).

The IRS emphasized that the guidance is not intended to be comprehensive with respect to the specific provisions addressed but is intended to provide guidance on discreet issues to assist retirement plan sponsors in commencing implementation of the changes. The IRS also noted that it is continuing to analyze all the new provisions added by SECURE 2.0 and anticipates issuing further guidance, including regulations, as appropriate.

The SECURE 2.0 provisions addressed in Notice 2024-2 include, but are not limited to, the following:

• Effective for plan years beginning after Dec. 31, 2024, Section 101 will generally require Section 401(k) and 403(b) plans to automatically enroll participants when they become eligible, though employees may affirmatively opt out of coverage. The initial automatic enrollment amount must be at least 3%, but not more than 10% of a participant’s compensation, with at least 1% increasing each year until it reaches at least 10% (but not more than 15%). The new requirements will not apply to Section 401(k) and 403(b) plans that were in existence on Dec, 29, 2022 under grandfathering rules, and there are other exceptions for small businesses with 10 or fewer employees, businesses less than 3 years old, church plans and governmental plans.
• Section 350 codifies an IRS administrative safe harbor correction rule that was set to expire, which provides a grace period of 9–1/2 months after the end of a plan year to correct, without penalty, reasonable errors in administering automatic enrollment and automatic escalation features.
• Section 604 allows defined contribution plans to provide participants with the option of receiving matching contributions (and certain other employer non-elective contributions) on a Roth basis.

The notice also provides guidance with respect to the following nine other provisions added by SECURE 2.0: (1) Section 102 (modification of credit for small employer pension plan startup costs), (2) Section 112 (military spouse retirement plan eligibility credit for small employers), (3) Section 113 (small immediate financial incentives for contributing to a plan), (4) Section 117 (contribution limit for SIMPLE plans), (5) Section 326 (exception to the additional tax on early distributions from qualified plans for individuals with a terminal illness), (6) Section 332 (employers allowed to replace SIMPLE retirement accounts with safe harbor 401(k) plans during a year), (7) Section 348 (clarification of the interest crediting rules for cash balance plans that credit variable interest), (8) Section 501 (provisions relating to plan amendments), and (9) Section 601 (SIMPLE and SEP Roth IRAs).